Banco BPI 2003
Report
Index
REPORT Leading business indicators 4 Introduction 6 Governing bodies 13 Historical milestones 14 The identity of BPI 16 Financial and business structure 17 The BPI Brand 18 Distribution channels 20 Corporate Governance at the BPI Group 22 Social investment 24 Highlights of 2003 26 Background to operations 28 Human resources 36 Technology 40 Operations 43 Commercial banking 44 Insurance 69 Asset Management 70 Investment banking 76 Private equity 81 Financial Review 84 Risk management 127 Rating 144 BPI Shares 146 Shareholders 149 Shareholders value creation 150 Final acknowledgements 151 Proposed appropriation of net profit 152
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Consolidated financial statements 153 Notes to the consolidated financial statements 160 Legal certification of accounts and audit report 224 Auditor’s report 226 Report and opinion of the Audit Board 227
ANNEXES The BPI Group's Corporate Governance Report 229 Trading information 291 Leading business indicators
(Consolidated figures in millions of euro, except where indicated otherwise)
1999 2000 2001 2002 2003 ∆% 02 / 03 Total assets 16 550.5 21 907.4 24 792.9 25 669.1 26 195.3 2.0% Total assets plus disintermediation 20 753.3 26 331.3 29 098.3 29 576.9 30 533.1 3.2% Shareholders’ equity 650.7 930.0 908.7 1 168.9 1 227.3 5.0% Loans to Customers (gross) and guarantees 12 023.4 16 542.8 18 768.9 19 738.0 20 690.1 4.8% Customer deposits 9 458.5 10 463.7 11 494.3 12 224.6 12 181.4 (0.4%) Total Customer resources 14 801.2 16 507.8 17 392.9 17 690.3 18 213.9 3.0% Assets under management 7 248.5 7 638.4 7 544.4 7 512.6 8 575.5 14.1% Operating cash flow 207.2 278.6 327.0 310.4 329.1 6.0% Net operating income 139.6 152.5 190.6 192.1 200.8 4.5% Net profit 124.8 152.4 133.3 140.1 163.8 17.0% Cash flow after taxation 192.3 278.5 269.6 258.4 292.2 13.1% Return on average total assets (ROA) 0.8% 0.8% 0.6% 0.6% 0.6%
Return on Shareholders’ equity (ROE) 22.4% 21.8% 14.8% 13.5% 13.9% Cost-to-income1 65.0% 60.7% 58.1% 58.7% 57.5% Efficiency ratio2 79.6% 71.9% 68.3% 67.1% 66.7% Ratio of own funds requirements3 11.6% 9.8% 9.2% 10.2% 9.9% Tier I3 6.8% 6.7% 5.9% 7.3% 6.7% Loans in arrears for more than 90 days as % of Customer loans 1.4% 1.0% 0.9% 1.3% 1.2% Provisioning cover for arrear loans 157.3% 194.2% 210.0% 153.0% 148.4% Cover of pension obligations4 102.4% 101.6% 100.0% 100.1% 101.4% Data per share adjusted (euro)5 Cash flow after taxation 0.32 0.44 0.40 0.35 0.38 8.4% Net profit 0.21 0.24 0.20 0.19 0.22 12.1% Dividend 0.09 0.09 0.09 0.08 0.09 7.8% Book value 1.05 1.37 1.34 1.54 1.61 5.0% Weighted average no. of shares (in millions)5 603.8 626.3 679.0 728.3 760.0 4.4% Closing price (euro)5 3.86 3.18 2.15 2.18 2.92 33.9% Total Shareholder return 2.5% (16.0%) (30.4%) 3.0% 38.5% Stock market capitalisation at year end 2 390.0 2 156.4 1 459.1 1 656.8 2 219.2 33.9%
Dividend yield 2.4% 2.4% 2.7% 3.9% 4.1% Retail branches6 (number) 592 592 584 564 573 1.6% Corporate and institutionals centres network7 54 63 63 61 54 (11.5%)
BPI Group staff complement (number)8 8 239 8 359 8 106 7 576 7 025 (7.3%)
1) Administrative overheads (personnel costs and outside supplies and services) as % of operating income from banking. Table 1 2) Administrative overheads and depreciation as % of operating income from banking, excluding profits from financial operations. 3) Calculated in accordance with the Portuguese Central Bank's rules governing minimum own funds requirements (Notice 7 / 96). 4) Pension liabilities recognised in the balance sheet. 5) Adjusted for capital increase, re-denomination and re-nominalisation. 6) Includes traditional branches (483 in 2002 and in 2003), housing shops, in-store branches, investment centres and automatic shops. 7) Distribution network specialising in serving medium-sized companies (38 Corporate Centres), large companies (6 Corporate Centres), 4 Wholesale Centres, 1 Project Finance Centre and Institutionals (5 Centres). 8) Group staff complement in the domestic and international activities. Includes term Employees and temporary workers.
4 Banco BPI | Annual Report 2003 GROWTH, PROFITABILITY, STRENGTH AND VALUE
Net total assets plus Bi.€ Bi.€ Loans and Customer disintermediation 35 20 resources
28 15
21 Net total assets1 Disintermediation2 10 14 Total Customer resources1 Loans to Customers 1) Corrected for duplication of 5 balances. 7 2) Off-balance sheet Customer 1) Corrected for duplication of resources. 0 0 balances. 9998 0102 03 9900 0102 03
Net profit M.€ € Net profit per share 180 0.28
135 0.21
90 0.14
45 0.07
0 0.00 9900 0102 03 9900 0102 03
Quality of loan portfolio % Bi.€ Own funds and own funds 6 2.0 requirements
4 1.5
Ratio of loans in arrears1 2 1.0 Loans in arrears1 net of provisions, as % of loans to Customers 0 0.5
1) Loans in arrears for more than Own funds 90 days. Own funds requirements -2 0 9900 0102 039900 01 02 03
Stock market capitalisation Bi.€ BPI Ratings 2.8 Issuer A+ Fitch Ratings Stable 23 Oct. 03* 2.1
A2 Moody’s 1.4 Positive 21 Nov. 03*
0.7 A- Standard & Poor’s Stable 10 Feb. 04* Long-term rating notations * last report 0 9900 0102 03
Figure 1
Report | Leading business indicators 5 Introduction
Strength and consistency The 2003 financial year confirmed the adequacy of BPI’s strategy adjustment to the difficult economic landscape of the last three years, marked by a noteworthy deceleration in domestic demand and by the clear deterioration in the Portuguese economy’s risk pattern. In the year under review, the Bank’s net profit rose by 17% and was accompanied by an unequivocal reinforcement of its solid economic and financial base: non-performing loans descended to 1.2%, unrealised capital gains associated with the portfolio of participating interests exceed unrealised losses, net of provisions – the latter falling to less than half the corresponding figure in 2002 – at the same time as provisioning cover for pension obligations surpassed the 100% mark and the capital ratios remain at comfortable levels. If we add the recovery of net unrealised losses on the financial investments and the favourable development in the pension- -related actuarial variances to the net profit for the year, we can confirm that the Bank’s net asset situation improved by EUR 400 million during the past year. Profitability also improved, as borne out by the increase in the return on equity to 14% and the 12% climb in earnings per share. In parallel, the efficiency indicators continued their positive advance, thanks to the containment of administrative costs, depreciation and amortisation and to the competitive capacity which the Bank has evidenced in the principal segments of retail banking.
BPI’s sound financial base and its consistent strategy were once again acknowledged by the leading international rating agencies (Standard & Poors, Fitch and Moody’s), which confirmed the previous classifications (A-, A+ and A2, respectively). Insofar as the outlook is concerned, the first two maintained their stable classification, while Moody’s upgraded its outlook to positive, which in this domain represent the best set of results managed by any Portuguese financial institution. The credibility of the Bank’s strategic direction was also confirmed by the market judging from the behaviour of its shares. In fact, Banco BPI shares, including the dividend paid, posted a return of around 40% in 2003, well above the PSI index which added 17.4% over the same period.
Efficiency The improvement in BPI’s net profit in 2003 is explained by the convergence of three essential positive effects:
The organic simplification completed in 2002, which permitted the elimination of tax and operating inefficiencies, with important repercussions for cost reduction;
The good commercial performance, which was responsible for the 3.2% rise in operating income from banking which, in turn, reflects the very favourable trend in commissions (+6.3% in consolidated terms);
6 Banco BPI | Annual Report 2003 Ongoing containment of administrative overheads, depreciation and amortisation, which rose by a mere 0.4% in consolidated terms, while in domestic activity this caption in fact declined 0.2%.
These effects over-compensated for the impact of three negative factors:
The 2.7% contraction in consolidated net interest income, above all as a consequence of the 17.6% fall in narrow net interest income associated with international activity, bearing in mind that the decline was only 0.7% in terms of domestic operations. The negative contribution from international activity is explained by the euro’s appreciation against the dollar, which led to a 15% drop in Banco de Fomento Angola’s net interest income (recorded in euro). Notwithstanding this factor which is linked to the prevailing framework, a quarterly analysis of narrow net interest income shows a positive evolution during the course of 2003 Chairman of the Board of Directors on both the domestic and international fronts; Artur Santos Silva
The 19.4% increase in net amounts set aside for provisions, explained chiefly by the creation of non-obligatory provisions for other risks and contingencies in the amount of EUR 17.5 million, given that total provisions for loans to Customers actually fell by roughly 5%;
The negative balance on net extraordinary items, which increased from EUR 5.3 million to EUR 18.9 million, in particular as a consequence of the rise in pension costs stemming from the execution in the last few years of the early-retirements’ programme, in terms of which the total number of Group Employees has been cut by some 20% in the period from the end of 2000 to the close of 2003.
An examination of BPI’s economic performance in 2003 confirms the credibility of the cost-reduction programme embarked on in 2001. The marginal increase registered last year in consolidated administrative overheads, depreciation and amortisation (+0.4%) is attributable to international activity, where this indicator grew by 17.4% as a result of the Bank’s greatly reinforced presence in Angola via BFA, which opened 10 branches (+60%), inaugurated its new head office building and recruited a further 155 Employees (+55%). If we limit our analysis solely to domestic
Report | Introduction 7 operations, the progression of costs with administrative overheads, depreciation and amortisation surpassed the initial objective of zero growth by registering a fall of 0.2%. This in turn reflects a decrease of 0.7% in personnel costs, an 8.5% decline in depreciation and amortisation, and a rise of 3.4% in outside supplies and services; furthermore, if we exclude the impact of BPI Rent’s full consolidation (done for the first time in 2003, when previously its accounts were equity-accounted), administrative overheads, depreciation and amortisation in fact fell by 1.3%.
The positive trend in costs led to a further improvement in the efficiency indicator (cost-to- -income), which dropped from 58.7 to 57.5%, thereby continuing along the downward trajectory initiated in 1999 when it was situated at 65%. It has become clear, however, that the trend in revenues – influenced by the adverse economic climate, which is more severe and prolonged than initially projected – will not permit attaining within the envisaged period the 53% goal set for this indicator at the end of 2004.
Competitiveness BPI’s commercial performance has confirmed its competitiveness, as demonstrated by its capacity to defend and raise market shares over and above its natural share in the majority of the prime segments of retail banking. Total Customer resources expanded 3%, with increases of 1.2% in balance sheet resources and 18% in off-balance sheet resources. Contributing in an expressive manner to the last-mentioned was the portfolio of unit trust (mutual) funds, which rose by approximately 15%, having attracted a net EUR 360 million in resources. Considering only the funds domiciled in Portugal, BPI Fundos occupied fourth place in the ranking of management companies at the end of 2003, with a market share of 17.5%, accompanied by an excellent performance in terms of the returns achieved. In similar vein, BPI Vida turned in a very positive performance, conquering 2nd position in the selling of life capitalisation (unit-linked) assurance (sole object of its business) with a market share of 18%, advancing from 11th to 4th place in the table of the overall insurance market’s new business written.
These numbers illustrate the excellent performance of BPI’s Asset Management area, which saw the total volume of managed assets climb by 14%, with equally very positive results in the sphere of pension fund business. According to studies published by independent specialist analysts, BPI Pensões attained first place amongst national pension-fund management companies in 2003 in terms of the annual return median. Benefiting from these results was the Bank’s own Pension Fund, with an annual return of 15%, which enabled it attain a cover rate of 101% for pension obligations and still have at its disposal an unutilised margin of EUR
8 Banco BPI | Annual Report 2003 130 million in the 10% “corridor” prescribed by the Bank of Portugal for accommodating actuarial and income variances without causing an immediate impact on earnings.
For its part, the Bank’s loan portfolio expanded by slightly more than 7%, much in line with the previous year and above the market average. The selective policy pursued in recent years was maintained, subordinated to criteria related to the return on allocated capital. As a consequence, we continued to observe a very contrasting behaviour amongst the major Customer and product segments, with yet another steep fall in wholesale banking (-30%) and increases in institutional banking and project finance (+51%), large and medium-sized companies (+1.6%), small businesses (+5.7%) and mortgage loans (16.5%). In this latter category, the Bank once again captured market share, climbing from 9.2% to 9.8% according to available estimates, or 1.5 times the index recorded in 2000.
Loan portfolio growth was accompanied by rigorous risk control, thereby making it possible to marginally reduce the ratio of loans in arrears for more than 90 days to 1.2% despite the adverse economic environment, while provisioning cover was situated at 148%. This scenario reflects a tranquil situation and represents clear progress when compared with the previous year. Contributing to the Bank’s good results in controlling credit risk within the context of widespread economic recession was the restructuring undertaken in 2002 in the Corporate Banking area, which entailed the functional separation of commercial activity and risk analysis. These functions became the responsibility of a specific, specialised and autonomous Central Division. This process entailed a profound cultural change, accompanied by a far-reaching revision of internal rules and regulations and by an intensive training programme. These initiatives produced extremely positive results that began to be fully visible in 2003, not just from the standpoint of risk analysis, portfolio monitoring and loan recovery, but also in terms of the results of commercial activity.
Meriting special mention on the grounds of its expansion is Banco de Fomento Angola (BFA). 2003 was its first year as a fully-fledged autonomous entity subject to Angolan law following its transformation from a branch of Banco BPI, which branch, in turn, resulted from the acquisition of Banco de Fomento e Exterior in 1996. BFA represents 4.6% of the Group’s shareholders’ equity and 2.5% of its assets. It is the second biggest local bank in deposits and third in terms of loans, with market shares of 26.7% and 21.2% respectively. At the time of Banco de Fomento’s acquisition, it had three branches; today, it has the country’s second largest network, with 27 branches throughout national territory. In 2003, resources and loans expanded respectively by 34 and 90%, in dollar terms, while the number of Customers rose by 50% to total 133 thousand.
Report | Introduction 9 Quality BPI has devoted ever more resources and know-how to the principal qualitative aspects of its development, such as Brand management, staff training, service level, technology and products. In 2003, a further step was taken in this domain through the creation, amongst other management instruments for the Individuals’ commercial network, of a Service Quality Index (Portuguese initials IQS). This index, which is compiled on the basis of regular Customer surveys, has permitted setting up a quarterly classification of the branches for internal dissemination. The IQS has transformed itself rapidly into a powerful and credible instrument for evaluating performance, with an important emulation effect, which focuses predominantly on the quality of service and the Customer’s needs. By the fourth quarter of 2003, the index had already recorded growth of 2.5% vis-à-vis the same period a year earlier, underpinned by improvements in terms of personal attendance and waiting time.
The creation of the IQS keeps pace with the modernisation of the Bank’s branch network, a process involving the development of a new lay-out model that has already been installed at 100 branches. This new blueprint is oriented towards personalised attendance, specialisation of the service rendered and complete automation of the principal banking transactions, including cheque and cash deposits available 24 hours a day. In parallel, work continued on the enlargement of the network of Investment Centres with the opening of eight new units, geared to offer personalised financial advisory services to high net-worth individual Clients. At the end of the year, 11 of the 15 Centres envisaged in this phase of the project were fully functional in the country’s leading cities. On the other hand, work was completed on the reorganisation and segmentation of the support network for Corporate Banking, which now has four wholesale centres, six large company centres, 38 medium-sized companies centres, a project finance centre and five institutional banking centres.
The physical network’s modernisation evolved in coordination with the strong expansion of the remote channels, increasingly integrated within the Bank’s routine operations. In 2003, the principal innovation in this area corresponded to the launching of BPI Net Empresas, a specialised home-banking service which at the end of the year already boasted 16 500 Customers, with 6.6 million pages visited. At the end of 2003, the BPI Directo / BPI Net service registered close to 400 thousand active Customers, corresponding to growth of 30%.; at the same time, the monthly accesses to BPI Net, through which roughly 60% of transactions on the stock exchange are realised, climbed by 83%. BPI online, the Group’s virtual bank, grew 65%, doubling market growth, thus climbing two steps in the respective ranking in 2003 and reaching a market share of 7%.
10 Banco BPI | Annual Report 2003 The refinements to management, installation and technological instruments have been complemented by intensive vocational training activity, increasingly combining technical skills and the aspects of behavioural nature that are crucial for sustaining the objectives of enhancing Customer perception of quality. The 814 training sessions held in 2003 occupied a total of 60 thousand hours and involved around 40% of BPI’s Employees.
Investment on the qualitative facet of service has been reflected in the cultivation of the BPI Brand’s attributes. In this domain, BPI retained its third position in terms of awareness in the banking sector according to the findings of Basef 2003, a specialised Marktest survey conducted continuously for more than a decade. Last year BPI progressed and was classified in second or third place in all key qualitative attributes: best bank, quality of attendance, innovation, clarity of information, soundness, trust and efficiency.
Executive Members of the Board
Maria Celeste Hagatong (Deputy-Chairman) Fernando Ulrich (Chairman) Artur Santos Silva António Domingues
António Farinha Morais Manuel Ferreira da Silva José Pena do Amaral
Report | Introduction 11 Renovation In terms of the statutory provisions (art.26 (3)) proposed by the Chairman and approved by the Board of Directors in 1998, the exercise of executive functions at BPI ceases when one reaches the age of 62. In these terms, the Chairman of BPI’s Board of Directors will pursue the mandate for which he was elected by the Shareholders, but will cease to serve as Chairman of the Executive Committee with effect from the holding of the Annual General Meeting, at which he will present the accounts for the 2003 financial year. On 3 December 2003 and at the Chairman’s proposal, the Board of Directors in the use of its statutory powers chose the Deputy Chairman Fernando Ulrich to assume the office of Chairman of the Executive Committee. Accordingly, a new phase in the Institution’s history begins, in which the offices of Chairman of the Board of Directors and Chairman of the Executive Committee will no longer be vested in the same person. It is a planned renovation and executed as foreseen, from which there is expected to be strategic continuity underwritten by a consistent history, shared along the victorious journey of the last twenty years. BPI will now have at its helm the same Chairman of the Board of Directors and a new Chairman of the Executive Committee – a Committee of great professional and human stature with an impressive track record. His election was not only the correct choice. It was also deserved.
12 Banco BPI | Annual Report 2003 Governing bodies
General Meeting Chairman Rui Manuel Chancerelle de Machete Deputy-Chairman Vasco Manuel Airão Marques Secretaries Galucho – Indústrias Metalomecânicas, S.A. Vitalina Justino Antunes Produtos Sarcol, Lda. Estela M. Barbot Company secretary Manuel Correia de Pinho
Board of Directors Chairman Artur Santos Silva Deputy-Chairmen Carlos da Câmara Pestana Fernando Ulrich Ruy Octávio Matos de Carvalho Members Alfredo Costa Rezende de Almeida António Domingues António Farinha Morais Armando Leite de Pinho Caixa Holding, S.A., Sociedad Unipersonal Fernando Ramirez Isidro Fainé Casas João Sanguinetti Talone José Pena do Amaral Klaus Dührkop Manuel Soares de Oliveira Violas Manuel Ferreira da Silva Maria Celeste Hagatong Riunione Adriática di Sicurtá Diethart Breipohl Roberto Egydio Setúbal Tomaz Jervell
Executive Committee of Board of Directors Chairman Artur Santos Silva Deputy-Chairman Fernando Ulrich Members António Domingues José Pena do Amaral Maria Celeste Hagatong Manuel Ferreira da Silva António Farinha Morais
Audit and Internal Control Committee Chairman Ruy Octávio Matos de Carvalho Members Carlos da Câmara Pestana Alfredo Rezende de Almeida Caixa Holding, S.A., Sociedad Unipersonal Fernando Ramirez
Audit Board Chairman Jorge de Figueiredo Dias Members José Ferreira Amorim Magalhães, Neves e Associados, SROC, S.A. Augusta Francisco António Dias & Associados, SROC, S.A. (alternate) António Dias
Remunerations Committee Chairman Itaúsa Portugal – Sociedade Gestora de Participações Sociais, S.A. Members Cotesi – Companhia de Têxteis Sintéticos, S.A. Arsopi – Indústrias Metalúrgicas Arlindo Soares de Pinho, S.A.
Figure 2
Report | Governing bodies 13 Historical milestones
LEADERSHIP, INNOVATION AND GROWTH
1981 Sociedade Portuguesa de Investimentos was conceived in 1981 BPI’s entry into the Commercial Banking arena, affording it with a well-defined project for a decade that had just started: to a substantial gain in size in preparation for the corporate finance investment projects launched by the private sector, to concentration process in the Portuguese financial system. It was participate in the creation of a dynamic capital market and to the Group’s overriding objective to guarantee the provision of the contribute to the country’s industry modernisation. BPI counted complete range of financial services for companies and individuals on a diversified shareholder base that included a strong domestic alike. An alliance was then forged with Banco Itaú, initially component, represented by 100 of the most dynamic companies through its equity participation in BFB. In 1994, this interest was in the country, and five of the most prominent international converted into a direct shareholding in BPI, following which financial institutions. Banco Itaú became one of the key shareholders.
1985 1995 SPI was transformed into an investment bank in 1985, thereby The Institution’s composition was reorganised in 1995: the allowing it to attract sight and term deposits, grant short-term original BPI was transformed into an SGPS (holding company), loans, participate in the interbank markets and engage in currency following which it was the only Group company listed on the stock operations. A year later, in 1986, the bank’s future direction was exchange, controlling Banco Fonsecas & Burnay and Banco marked by the opening of its capital to the general public and the Português de Investimento, in the meantime formed through the listing of its shares on the Lisbon and Oporto Stock Exchanges. transfer of the assets and liabilities allocated to the business activity traditionally conducted by this type of institution and 1991 hitherto undertaken by BPI. In 1991, a decade after its formation, BPI had already conquered an undisputed leadership in the principal areas of Investment This reorganisation precipitated the specialisation of the Group’s Banking, playing a major role that gained further momentum as various units and was accompanied by an important reinforcement the decade advanced thanks to the privatisation programme in of its shareholder structure with the entry of two new strategic Portugal, and assumed its ambition to consolidate its position as partners of considerable size to team up with the Itaú Group: La one of the country’s premier financial groups. It was in this spirit Caja de Ahorros y Pensiones de Barcelona (“La Caixa”), and the that it resolved to acquire Banco Fonsecas & Burnay marking German insurance group Allianz.
Net total assets plus disintermediation
Acquisition of Banco Fonsecas & Burnay 5 Bi.€ Creation of SPI, Transformation of SPI into Sociedade Portuguesa an investment bank – Banco de Investimentos Português de Investimento 5 M.€ 66 M.€
81 82 83 84 85 86 87 88 89 90 91 9
14 Banco BPI | Annual Report 2003 1996 / 1998 2002 A year later (in 1996) the acquisition of Banco de Fomento In 2002, BPI concluded an important internal reorganisation and Banco Borges was the beginning of a process that would programme that substantially altered its societary structure and the culminate, two years later, with the creation of Banco BPI, manner in which it is governed. In essence, the programme providing it with the largest single-brand banking network in involved the centralisation of commercial banking at Banco BPI, Portugal. Banco BPI was formed, in 1998, by the merging of while the investment bank focused on its natural business Banco Fonsecas & Burnay (BFB), Banco de Fomento e Exterior vocation. BPI SGPS incorporated Banco BPI and, simultaneously, (BFE) and Banco Borges & Irmão (BBI), to be joined later that assumed the core business mission of a commercial bank, year by Banco Universo (an in-store bank), acquired in the adopting the name Banco BPI and in simultaneous assuming the meantime. After the merger, the structure was significantly role as the entity at the Group’s helm. These alterations endowed simplified: BPI SGPS now comprises just two banking institutions: BPI with a simplified legal configuration, more attuned to its Banco Português de Investimento, named BPI – Investimentos, present business model: it will enable BPI to secure cost savings and a new commercial bank called Banco BPI. and efficiency gains in the Group’s functioning over the next few years. Banco de Fomento is formed in Angola through the 1999-2001 transformation of Banco BPI’s Luanda branch into a bank subject The next three years – 1999 to 2001 – have confirmed BPI’s to Angolan law. potential for growth, modernisation and structural reinforcement engendered by the 1998 merger: the Group has boosted market In parallel, BPI intensified the programme – permanently being shares in all the key areas of commercial banking, it has implemented – aimed at the rationalisation, rejuvenation and expanded and streamlined its distribution structure, rapidly qualification of its human resources, the upgrading of its transforming itself into a multi-channel bank, it has thoroughly technology, the intensive promotion of the distribution channels renovated its technological capability and built up one of the and brand development, with the overriding object of decisively financial system’s most dynamic brand names. strengthening the key competencies in order to affirm the objectives that form the basis for the Bank’s project for the future: efficiency, quality and service.
31 Bi.€ Creation of Banco BPI Acquisition of Banco (merge of the commercial banks Fomento e Exterior and BFB, BFE and BBI) Creation of the holding Banco Borges & Irmão Programme of internal BPI SGPS 20 Bi.€ 17 Bi.€ reorganisation, rationalisation, 8.2 Bi.€ rejuvenation and qualification
2939495 96 97 98 99 00 01 02 03
Figure 3
Report | Historical milestones 15 The identity of BPI
A company is just like a person: it has its own identity and personality, it stands out for its character, its principles, its way of doing, its objectives.
Banco BPI’s identity is marked by the financial and business culture of Banco Português de Investimento. The essential traits of this culture are management independence, organisational flexibility, team work, recognition of merit, the ability to anticipate, strict management of risks and the secure creation of value.
Earning a just return from the Bank’s business operations through the adoption of superior management and service practices constitutes a fundamental goal of our activity. The safeguarding of Customer interests, with dedication, loyalty and confidentiality, is one the core principles of the business ethics and code of conduct assumed by the Bank’s Employees.
An institution’s personality asserts itself through its own attributes, which gain consistency and credibility in its daily interaction with Customers and the community. In particular, BPI values two of these attributes: Experience and Harmony.
Experience is the reflection of the training undergone by our teams and the important professional capital accumulated during the history of each one of the institutions which gave rise to the Bank. It translates itself into the dimension of our commercial presence, the soundness of our financial indicators, the security of our growth and in our proven ability to achieve and lead.
We wish to combine Experience with Harmony, which expresses the permanent ambition of serving our Customers and the community with the highest standards of ethics and quality. It is a projected aspiration for the future, always open-ended, imposed by the constant desire to refine so that we do better. It is our most challenging mission that, in the final analysis, justifies all others.
16 Banco BPI | Annual Report 2003 Financial structure and business
The BPI Group – headed by Banco BPI – is a universal In asset management activity, BPI is a prime player in the financial and mutli-specialist group, focusing predominantly management of unit trust (mutual) funds, pension funds and on commercial banking business and on domestic activity, to life-capitalisation insurance. which are allocated 95% of its capital. International commercial banking business (which accounts Banco BPI serves more than 1.3 million Customers – for 5% of the Group's capital) is essentially carried out in Individuals, Companies and Institutions – by means of a Angola through by Banco de Fomento, held by 100% and in multichannel distribution network comprising approximately Mozambique through BCI Fomento, held by 30%, in 500 retail branches, 11 investment centres, a homebanking partnership with Caixa Geral de Depósitos. service (BPI Net), telephone banking (BPI Directo), specialist branches, agent network and structures dedicated to the In the insurance sector, BPI operates in partnership with Corporate and Institutional segments. Allianz through a 35% stake in Allianz Portugal, as well as via an insurance distribution agreement covering the Bank’s Banco Português de Investimento, the BPI Group’s original commercial network. BPI also owns a 50% interest in a matrix, is engaged in investment banking business –Equities, credit insurance company, Cosec. Corporate Finance and Private Banking. Private Equity business is conducted through a subsidiary company (84% controlled).
Main units of the BPI Group1
Banco BPI
Domestic Financial Commercial Banking Investments
Investment Banking Private Equity International Asset Management Insurance Commercial banking Banco Português Inter-risco Banco de Fomento BPI Fundos Allianz Portugal de Investimento Angola 100% 84% 100% 100% 35%
BCI Fomento BPI Pensões Cosec Mozambique 30% 100% 50%
Banco BPI BPI Vida Cayman 100% 100%
1) Effective direct / indirect participations. Figure 4
Report | The identity of BPI and Financial structure and business 17 BPI Brand
The BPI Brand consolidated its position as the Portuguese qualitative attributes: BPI jumps from third to second place banking system’s third brand in 2003, according to the in the “best bank” ranking, from fourth to second place results of the Basef – Estudo Base sobre o Sistema with respect to “attendance”, from fourth to third position Financeiro (Base Study of the Financial System) published in the category “most innovative bank” for “clarity of regularly by the independent company Marktest for more information” and “efficiency”, while retaining its third place than a decade now, both in terms of spontaneous awareness (with an increase of 15%) in the “trust” indicator. (top-of-mind) and as regards the main qualitative attributes. This study is based on a random sample of 15 thousand In a year marked by a strong recovery in the financial annual interviews conducted in three four-monthly series. sector’s advertising expenditure, BPI once again occupied a front-running position amongst the main Groups with Awareness and Attributes respect to the efficiency indicators. The Bank was the The spontaneous awareness indicator (top-of-mind fourth biggest investor in this domain, but achieved second reference) registers a grow rate of more than 10% relative place in the indicators relating to spontaneous recollection to 2001 and in line with the trend noted in the preceding and proven television recollection when considering the year year, shows an improvement in relation to the second and as a whole. Accordingly, it was able to present the best fourth-placed brands. More impressive, however, is the efficiency indicator, as gauged by the relationship between progress recorded in the perception of the brand’s chief the investment made and the recollection level obtained.
18 Banco BPI | Annual Report 2003 Quality and Satisfaction The consistent improvement observed in the qualitative attributes associated with the BPI Brand reflects from the standpoint of the communication policy, the systematic concern with the quality of service provided to the Customer. This concern constitutes the ultimate objective of an investment programme focused on three main areas: Employees’ behavioural training, the technological streamlining of the multi-channel platform which serves the entire Bank and the modernisation of the networks through new models addressing segmentation and the organisation of physical spaces. Enhancing the quality of service as the Institution’s primary goal experienced another important advance in 2003 with the creation of a new management instrument for Individuals Banking – the Service Quality Index (Índice de Qualidade de Serviço – IQS). This index enables BPI to establish a quarterly classification of the branches based on regular Customer surveys. In this arena, it is worth highlighting the fact that BPI again secured first place in 2003 amongst the five biggest Portuguese banks in the classification of the European Index of Customer Satisfaction relating to Portugal. This index, presented regularly since 1999, is compiled by means of a partnership between the Instituto Português da Qualidade (Portuguese Quality Institute), the Associação Portuguesa para a Qualidade (Portuguese Association for Quality) and the Instituto Superior de Estatística da Universidade Nova de Lisboa (New Lisbon University’s Higher Institute for Statistics), based on a European-wide model and supervised by two international entities – the European Foundation for Quality Management and the European Quality Organisation.
Report | BPI Brand 19 Distribution channels
BPI distribution network in mainland Portugal
Clients Physical network Remote channels
Individuals Individuals Traditional branches 483 BPI Directo (telephone banking) BPI Imobiliário Banking and 808 200 500 www.bpiimobiliario.pt Small Housing areas 64 Small Businesses 464 thousand subscribers 281 th. real estate properties Businesses BPI Net areas 310 announced Turnover below In-store 13 EUR 2.5 million BPI Net (homebanking) BPI Online (brokerage) Investment centres 11 www.bpinet.pt www.bpionline.pt Housing shops 19 464 thousand subscribers 14 largest world-wide markets Automatic branches 47 Automatic Bank (ATM) 1 118
Corporate Wholesale Wholesale centres 4 Banco Electrónico BPI Banking, Institutional 70 biggest business Banking and groups BPI Net Empresas Project www.bpinetempresas.pt Large companies Large companies centres 6 Finance Turnover above EUR 25 million
Medium-sized Medium-sized companies centres 38 companies Turnover between EUR 1.25 million and EUR 25 million
Project Finance Project Finance centres 1
Institutional1 Institutional centres 5
1) Local authorities, autonomous regions, social security system, universities, public utility associations and other non-profit entities.
20 Banco BPI | Annual Report 2003 Overseas distribution network
Banks Overseas branches Representative offices
Commercial Banco de Fomento Paris (9 branches) Paris Banking (Angola – 27 branches) Geneva 2 Madrid Distribution agreements 1 Canada (Montreal bank)* BCI Fomento Hamburg Luxembourg (DEXIA/BILL bank)* (Mozambique – 31 branches) ta S. Maria – Azores Belgium* (offshore branch) Newark Sweden* Banco BPI Cayman Caracas United Kingdom* Funchal – Madeira Australia (offshore branch) Johannesburg Brazil
Investment Santiago de Compostela Banking Madrid BPI Suisse
1) 30% shareholding. 2) Distribution agreements with banks or post offices to support the emigrant communities (marked with a *) and agent networks.
Report | Distribution channels 21 BPI’s Governance
ANNUAL GOVERNANCE REPORT The description of BPI’s remuneration policy, its BPI’s principles, policies and practices relating to a number components and the amounts earned by members of the of themes associated with the manner in which it is Board of Directors, including an exhaustive description of managed and supervised, are described in the report on the the share incentive and options scheme (Portuguese initials BPI Group’s Corporate Governance, presented1 as an annex RVA); to the Directors’ Report.
The disclosure of the amounts paid by the BPI Group to its BPI Board of Director’s has made a considerable effort to auditors (and to their network), as well as the current present a report that is increasingly more comprehensive. mechanisms for safeguarding independence (applicable to In this way, it provides a positive response to the Securities BPI and to the auditors) which ensures the objectivity and Market Commission’s initiatives concerning «Corporate confidence in the audit work. Governance», but also to perfect BPI’s governance model and the relating reporting policy to the guidelines published Members of governing bodies and Employees are bound by by various European bodies, in particular, those emanating a set of internal rules enshrined in codes of conduct which from the European Commission. in certain cases go much further than what is required under the law and by professional associations; Amongst the aspects analysed in the BPI Group’s Corporate
Governance Report, the following merit special mention: BPI’s policies and practices aimed at preventing conflicts of interest, violation of professional confidentiality,
The detailed description of the composition, areas of diligence and loyalty in stock broking activity, as well as responsibility and activity carried out by the BPI Group’s promoting the combat against terrorism, money laundering management and oversight bodies; and insider trading;
The existence since 1999 of an Internal Control Committee The existence since 1993 of a structure dedicated (in 2003 was renamed to Audit and Internal Control exclusively to investor relations which, besides being Committee) which, because it comprises members with no available through the traditional communication media, has executive functions, reinforces its independence and the its own website (www.ir.bpi.pt) where it is possible to find effective compliance with the objectives laid down by it; all the information of an institutional nature disclosed to the market in both Portuguese and English.
The measures implemented by BPI aimed at stimulating
Shareholder participation in the company’s affairs, notably, at Analysis of Banco BPI’s share performance on the stock the General Meetings (GM). An example of this resolve is the exchange, including the identification of all important facts ample dissemination (besides that required by law) of the announced to the market, market indicators for the last 5 topics to be discussed and the necessary procedures for years, information about transactions in treasury stock, exercising voting rights, the acceptance of postal voting (mail BPI’s dividend policy and the Group’s shareholder and electronic), the existence of ballot papers, the creation of structure. a page on the Internet for supporting the event, etc;
1) See pages 227 to 288.
22 Banco BPI | Annual Report 2003 Recognition by the market In the XVIth edition of the prizes for the best annual reports of companies quoted n the Portuguese stock exchange, BPI was distinguished in 2003 for the third consecutive year (and for the eighth time in sixteen editions) with the award for the best «Report and Accounts of the financial sector», and with the prize – in its second edition and won for the second time, for the “Best Report on Corporate Governance” from amongst all the companies listed on the Euronext Lisbon market. In the 2003 edition of the “Investor Relations Awards”, BPI was also honoured with nominations in the categories of best overall investor relations programme, best investor relations officer and best use of technology in investor relations.
The nominations and prizes obtained by BPI constitute the reaffirmation of public acknowledgement of the complete, rigorous and transparent manner in which the Bank communicates to the market its activity, as well as the way in which it is governed and controlled.
Report | BPI’s Governance 23 Social investment
CULTURE, RESEARCH, EDUCATION AND SOCIAL SOLIDARITY
In 2003 and in spite of the difficult economic environment, edition of Justino Alves, a book about the paintings of Jaime the BPI Group continued to patronise projects and initiatives Izidoro, “Transições” (catalogue of a retrospective exhibition by of indubitable merit in the cultural, educational, research and students of the Oporto University’s Fine Arts Faculty). In the social solidarity fields, at the same time as fulfilling the field of photography, the highlights were “Porta do Paraíso” by commitments previously assumed. It also offered its support to Júlio de Matos, “Vento como se não houvesse”, by João Paulo other initiatives which were properly organised and structured. SottoMayor and O Convento dos Cardaes – Veios da Memória. In addition, the Bank sponsored Paulo Rocha’s film “Vanitas”. In the cultural arena, the BPI Group pursued the same line of continuity, always adopting an active and supportive policy BPI also collaborated in the books paying homage to Francisco promoting creativity with diversity and innovation as a lasting Salgado Zenha and Helena Vaz da Silva. commitment. Continuity was also given to the assistance given to the At the invitation of the President of the Portuguese Republic, following entities: Ajuda National Palace; Árvore – Cooperativa the BPI Group undertook to be a patron of the Museu da de Actividades Artísticas, CRL; Associação Comercial do Porto, Presidência, the inauguration of which is envisaged to take for the publication of O Tripeiro; Associação Casa Museu Abel place in May 2004. Salazar; Ateneu Comercial do Porto; Associação Museu da Imprensa; Bienal Internacional de Vila Nova de Cerveira; The protocol signed with the Serralves Foundation was Associação Cultural – Casa de Animação; Centro Português de renewed in 2003 for a further two years, while support Fotografia; Festival Internacional de Curtas Metragens de Vila continued to be given the following foundations: Aquilino do Conde; Fórum Portugal Global; the Lawn Tennis Clube da Ribeiro, Casa de Mateus, Eça de Queiroz, Eugénio de Foz; Marânus – Associação Divulgadora da Vida e Obra de Andrade, Júlio Resende, Luís Miguel Nava, Rei Afonso Teixeira de Pascoaes; APOR – Agência Portuguesa para a Henriques. Banco BPI also gave backing to the Fundación Modernização do Porto – Projecto Porto com Pinta; APCNP – Justicia en el Mundo (Justice in the World Foundation). Associação para a Promoção Cultural do Norte de Portugal.
The protocol with the Fundação Calouste Gulbenkian for the In the field of learning and research, as in previous years, cycle of the “Great World Orchestras” continued to remain in significant backing was given to the Universities of Porto and force. Once again, the following were also considered to merit Coimbra, to the Universidade Católica Portuguesa, to the sponsorship: Círculo de Cultura Musical do Porto, Concurso Universidade Técnica de Lisboa and to the BBS – Instituto Internacional de Música do Porto (Oporto International Music Bancário da Bolsa e dos Seguros. Continuity was given to the Contest), the Orquestra Nacional do Porto (Oporto National initiatives for which prior undertakings had already been Orchestra), Encontros de Música da Casa de Mateus, II assumed, while new projects were the object of patronage, Encontros com a Música (II Encounters with Music) – Quinta such as that of the Escola das Artes do Centro Regional do da Aveleda and the Festival de Música Lírica (Lyrical Music Porto da Universidade Católica Portuguesa, or the exhibition Festival), promoted by the Figueira da Foz Municipal Council commemorating 50 years of the Porto University’s Economics and Associação Cultural do Monte de Fralães. Faculty. Also worthy of a reference was the support given to the Portuguese university professor – António Borges, at Support was also given to the new editions of books about INSEAD. Portuguese artists, thereby adding to the already vast number of reference works published in previous years. Worthy of a Once again, BPI supported AR.CO. Centro de Arte & mention are the book on the design / drawing work of the Comunicação Visual, the Colégio Universitário de Montes renowned architect Alvaro Siza “O que a luz ao cair deixa nas Claros and the Associação Portuguesa – European Youth coisas”, written by Bernardo Pinto de Almeida; a retrospective Parliament.
24 Banco BPI | Annual Report 2003 2003 also saw BPI continuing to assume its commitment BPI once again accepted the invitation to contribute to the under the project involving the teaching of Portuguese in the Diplomatic Corps Bazaar, which is sponsored by the President diocese of Baucau, in Timor. of the Republic.
A subsidy was granted to the Instituto de Estudos Estratégicos Banco BPI also sponsored the International Conference on Internacionais (Institute for International Strategic Studies) for Television Violence and Society organised by the Universidade the Fórum Euro – Latino Americano and to the Associação Católica Portuguesa, which was honoured with the presence of Portuguesa de Gestão e Engenharia Industrial – APGEI Her Majesty, the Queen of Spain. Portuguese Association for Industrial Management and Engineering) for the holding of the annual conference on Also the recipients of BPI’s backing were Abraço (AIDS innovation. support group); the Liga dos Amigos das Crianças do Hospital Maria Pia (friends of child patients of the Maria Pia Hospital); It should be added that Banco BPI, at the invitation of the Liga Portuguesa Contra o Cancro (Portuguese League against Ministry of the Economy, was also one of the sponsors of Cancer); the Fundação Pro Dignitate; the Fundação Infantil “Portugal 2010: Accelerating Productivity Growth”. Ronald MacDonald; the Elo – Associação Portuguesa para o Desenvolvimento e Cooperação (Portuguese Association for Particular significance is attributed to the creation of COTEC – Development); the Leigos para o Desenvolvimento and the Associação Empresarial para a Inovação (a business innovation OIKOS –Cooperação e Desenvolvimento. association), following an initiative of the President of the Republic, BPI was a promoter of this important project and Also in 2003, the BPI Group gave an undertaking to provide worked closely in the initial studies. It is hoped that COTEC meaningful support to the recently-formed CADIN – Centro de will serve as a vital catalyst for accelerating the process of Apoio ao Desenvolvimento Infantil (Support Centre for Child innovation in Portugal. Development).
Under the aegis of Banco de Fomento Angola, significant support was given to the Portuguese Catholic University of BPI SOCIAL INVESTMENT POLICY Angola and which contemplated the attribution of study Because companies form part of the society and bursaries to students, and through the Coimbra University’s communities which they serve, they have to be attentive Law faculty, support was given to students studying for their to their problems and projects while at the same time masters degrees at the Law Faculty of the Universidade understanding their difficulties and ambitions. Agostinho Neto. Other sponsorships were directed at the Casa do Noviciado da Província Portuguesa da Ordem Beneditina From BPI’s standpoint, this relationship between companies (house for Benedictine novices), to the União dos Escritores and their regional or national communities epitomises its Angolanos (union of Angolan writers) and the Universidade de social obligations as a company and which have been Benguela. enshrined in the Bank’s permanent policies right from its foundation. In the area of social solidarity, BPI gave immediate and substantial aid to the victims of the devastating fires which The policy of social responsibility defined by BPI involves raged in July and August, having provided financial support above all patronage initiatives; however, it is not limited to which permitted funding the reconstruction of around 20% of this facet. It embraces partnerships with other public and the houses destroyed. private institutions and gives priority to projects with immediately identifiable results which under any other circumstances would be difficult to accomplish.
Report | Social investment 25 Highlights of 2003
February, 3 BPI discloses the consolidated results for 2002. Net profit was EUR 140.1 million, yielding a ROE of 13.5%.
March, 18 Banco BPI’s Executive Committee stages the III Annual Conference for Analysts and Investors at the Centro Cultural de Belém, in Lisbon, at which it presented the BPI Group’s activities, prospects and strategy.
April, 3 The Annual General Meeting, at which shareholders with 59.3% of the voting rights were either present or represented, approved the annual report, the accounts and the dividend, with more than 99.9% of the votes in favour.
April, 24 BPI presents the results for the 1st quarter. Net profit was EUR 38.9 million, representing a ROE of 13.1%.
April, 29 BPI pays a dividend of 8 cents per share, which corresponds to a payout of 43.4% and a dividend yield of 3.9%.
June, 6 BPI floats a EUR 500 million bond issue with a maturity of 2 years for institutional investors on the international market.
July, 14 Inauguration of Banco de Fomento Angola head office building in Luanda.
July, 30 BPI presents results for the 1st half of 2003. Net profit totalled EUR 80.5 million, giving a ROE of 13.7%.
August, 5 BPI, through its subsidiary BPI Capital Finance, issues EUR 250 million in preference shares on the international August, 18 market. On 18 August it exercises the early redemption option on the B series preference shares which it issued in December, 19 1996, in the amount of USD 100 million and on 19 December it exercises the call on the A series in the amount of USD 150 million.
September, 9 Banco de Fomento Mozambique receives for the second consecutive year the prize “Bank of the year in Mozambique” attributed by the magazine “The Banker”.
September, 30 Banco de Fomento Mozambique is awarded the Gold Medal for excellence in business practice by the “Foundation for Excellence in Business Practice (FEBP)” whose headquarters are in Geneva.
October, 13 Banco de Fomento, SARL's (Mozambique) General Meeting approves the proposed merger between Banco de December, 4 Fomento and Banco Comercial e de Investimentos, SARL in October. The signing of the merger deed took place in December. Banco BPI now has a 30% interest in the resulting entity, which adopted the brand BCI Fomento.
October, 15 BPI floats on the international market a EUR 250 million subordinated bonds issue maturing in 10 years but with December, 18 the possibility of early redemption at the end of 5 years; on 18 December it exercises the option to redeem early the previous issue in the amount of about EUR 74.8 million.
26 Banco BPI | Annual Report 2003 October, 23 BPI presents the results for the 3rd quarter. Net profit to 30 September was EUR 113.8 million, yielding a ROE of 12.9%.
October, 27 On the occasion of the visit by Portugal’s Prime Minister to Angola, Banco de Fomento Angola sponsors the seminar “Angola / Portugal – Opportunities and Challenges”.
October, 30 BPI was distinguished with the prizes for the best Annual Report in the financial sector for the 8th (and 3rd consecutive) time, and with the prize – for the second time in its second edition– for the best Corporate Governance report from amongst all the companies listed on the Euronext Lisboa market.
November Standard & Poor’s, Moody’s and Fitch Ratings confirmed BPI’s “A” rating. Moody's changed its “outlook” from “stable” to “positive” for Banco BPI’s “A2” (long term) and “C+” (financial strength) ratings, underlining Banco BPI’s proven capacity in presenting solid profit ratios, good asset-quality indicators and the fact that it had successfully maintained its position in the market, despite the escalation in competition and notwithstanding the difficulties experienced by the Portuguese economy.
November, 14 Conclusion of the sale of the 17% shareholding in Banc Post to Eurobank Ergasias SA, following approval by the Rumanian authorities.
December, 2 BPI opens 8 investment centres – a specialised and personalised service concept, targeted at high net worth Clients or those with strong potential to accumulate wealth –, bringing the total number of fully operational centres to eleven.
December, 3 Banco BPI’s Board of Directors unanimously approves the appointment of Deputy-Chairman Fernando Ulrich to the office of Chairman of the Executive Committee with effect from the holding of the Shareholders General Meeting to be held on 20 April 2004. The nomination of Fernando Ulrich was proposed by the Chairman of the Board of Directors Artur Santos Silva, who ceases functions on account of having attained the age of 62, which in terms of the Statutes is the age limit for the exercise of executive functions at the Bank.
February Prize for the best Research team in Portugal, in 2003 (October), 8th in the ranking “Pan-European Stock Picking June, 12 in 2002” (small caps team, June) and no. 2 in the ranking “All – Europe Research Team”, (no. 1 for English October, 30 and American fund managers, February).
December, 31 The BPI Group records a consolidated net profit of EUR 163.8 million, which corresponds to a return on shareholders’ equity of 13.9%.
Report | Highlights of 2003 27 Background to operations
Macroeconomic background After two years of frustrated expectations of an upturn, the Portugal mirrored the pattern of Europe’s economic international economy emitted signals of a recovery in the performance, but presented one of biggest falls in GDP in the second half of 2003, commencing with the United States. region of 1.1%. This performance contrasts with that of Spain, The revival in economic activity was observed in the world’s which posted growth of 2.4%. This disparity resulted from the leading economies, while latest available indicators (in divergent trend in domestic demand, in particular, private particular, in opinion surveys) point to the fact that this trend consumption and investment. In Portugal, the first-mentioned will remain intact in 2004. At the same time, however, the experienced a drop in the order of three-quarters of a turning point appears to be less pronounced than usual and percentage point, whereas in Spain it grew by 3%. Gross fixed continues to be influenced by the imbalance in fundamental capital formation contracted by 10% in Portugal, whereas it variables: from America’s external deficit to the public expanded by some 3% in Spain, fuelled above all by private finances of the world’s biggest economies. construction (residential and non-residential). This trend, in tandem with the growing integration of the two economies,
Real GDP growth underscores the increasingly greater importance that the Year-on-year rates of change Iberian market represents for Portuguese companies. % 7.5 Consumption and investment Year-on-year rates of change 5.0 % 15 2.5
0.0 5
0 -2.5 1999 2000 2001 2002 2003 -5 USA Chart 1 Portugal Euro Zone -15 1999 2000 2001 2002 2003 Sources: Eurostat (Euro zone and Portugal) and Bureau of Economic Analysis (United States). Private consumption in Spain Chart 2 GFCF in Spain In 2003, after the Euro zone’s economic activity having Private consumption in Portugal GFCF in Portugal stagnated in the first half of the year, it climbed by half a Sources: "Instituto Nacional de Estatística de Portugal" and "Instituto Nacional percentage point in the second half thanks to the expansion in de Estatística de Espanha" (Portuguese and Spanish Statistics Institutes). exports. However, it is important to stress that growth was extremely heterogeneous within the EU, bearing in mind that In Portugal, construction and commerce in the private sector some countries belonging to the Euro zone (Spain and Greece) were the activities most affected by the fluctuations or not (United Kingdom) presented appreciable growth rates, provoked by the correction of the macroeconomic imbalances whilst others (such as France or Germany) languished close to that had led to the deterioration in the external position and stagnation. in the public accounts. Given that these sectors are also
28 Banco BPI | Annual Report 2003 amongst those which contribute most to the creation of job sharp adjustment phase that led to the reduction of the posts, it is not surprising therefore that unemployment rose budget deficit to below the 3% level. throughout 2003, with the rate climbing to 6.4%. A year earlier the same rate had stood at 5.1%. 2003 was also marked by households having to make adjustments to their financial situations for the first time. The evolution of the Portuguese economy over the last two Loans for housing decreased (from 15.4% in December years has assumed a certain degree of complexity. On the 2002 to 12.2% at the end of 2003, adjusted for the effect one hand, there has been a pressing need to correct rapidly of securitisation operations carried out by banks), while the accumulated macroeconomic imbalances. On the other, credit for consumption and other purposes rose only endeavours have been made to respond to the need to effect marginally (2% in December 2003). The ratio of household the structural adjustments capable of restoring the indebtedness is estimated to have reached 110% of economy’s competitiveness, bearing in mind not only the disposable income, which conforms to the situation EU’s enlargement, but also the mounting transfer of labour- prevailing in the principal OECD economies. The low level of -intensive activities to outside the country, notably to China interest rates and, in particular, the drop in mortgage-loan and southern Asia. These factors dictate the need to attract rates have, according to Bank of Portugal and Ministry of investment for higher value-added activities, a process Finance estimates, allowed the weight of interest payments entailing far-reaching reforms to labour, entrepreneurial, tax made by households to fall in the last two years to be and competition laws and practices. It also presupposes a situated in 2003 at slightly above 5% of disposable income. regime change to budgetary policy, rendering it more The less optimistic outlook for employment and salary effective in putting an end to the start-up and sudden stop increases should, however, continue to provoke a cycles which accentuate instead of attenuating externally- deceleration in the ratio of household indebtedness in the -sourced economic fluctuations. coming years.
2003 saw some strides being taken in this direction, Loans to companies, the growth rate of which had already although the adverse international landscape and the abated appreciably in 2002, decelerated even further in constraints imposed by budgetary adjustment in an 2003 (2.7% in December whereas at the end of the previous unfavourable economic climate did not facilitate this task. year it had been 7.5%, according to Bank of Portugal data It is therefore imperative that advantage be taken of the corrected for securitisation operations, reclassifications and brighter prospects for 2004 so as to foster a positive climate asset write-offs). The construction sector, as well as that for sharing the costs, as well as the benefits, capable of covering other real-estate activities, letting and services kindling the necessary social support for extending further rendered to companies, were those which contributed most the reforms already initiated or merely announced. In similar to the increase in bank lending to the business sector. These vein, there needs to be some budgetary relaxation flowing were followed by the transportation, retailing and tourism from an interpretation of the Stability and Growth Pact that sectors. is more attuned to the economy’s situation. Indeed, the economy now finds itself at a point immediately after the
Report | Background to operations 29 At the end of the year, the ratio of defaulting loans reached Loans and bank deposits Year-on-year rates of change 2.1% of total loans in the case of companies, and 2.3% in % the case of individuals. There was therefore a reversal vis-à- 45 -vis the position recorded in December 2002, at which time 35 the ratios were situated respectively at 2.4% and 2.1%. 25
Total deposits of residents maintained their stagnating trend, 15 reflecting the unfavourable evolution in disposable income 5 and households’ debt-servicing costs. In December, 0 individuals’ deposits posted growth of just 0.8%, compared -5 1999 2000 2001 2002 2003 with the 1.2% registered in 2002. Loans to non-financial companies Chart 3 Loans to individuals Total deposits of individuals
Source: Bank of Portugal.
Detailed forecasts for Portugal and the euro zone % growth rates 2003 2004 Portugal Euro Zone Portugal Euro Zone
BoP1 EC2 EC2 BoP EC2 EC2
1 1 1 Private consumption -1 /4 :- /4 -0.9 1.3 0 : 1 /2 0.8 1.6 Public consumption 0 -0.9 1.7 -0.8 -0.2 1.3
3 3 Fixed investment -11 : -9 -9.2 -1.0 -4 /4 : - /4 1.0 2.4
1 1 3 3 Exports of goods and services 2 /2 : 3 /2 3.1 -0.1 4 /4 : 6 /4 5.1 5.1
3 3 Imports of goods and services -2 /4 : -1 /4 -2.9 1.6 1 : 3 3.9 5.2
1 3 1 GDP -1 /2 : - /4 -0.8 0.4 0 : 1 /2 1.0 1.8 Inflation3 3.3 3.4 2.0 2 : 3 2.6 2.0
4 1 1 1 1 Current account balance -3 /4 : -2 /4 -4.5 1.0 -2 /2 :- /2 -4.2 1.2
1) Bank of Portugal, Economic Bulletin, December 2003. Table 2 2) European Commission, Autumn Forecasts, October 2003. 3) Harmonised Index of Consumer Prices. 4) As a percentage of GDP. The Bank of Portugal’s forecasts also include the balance on capital account, the most significant component of which are community transfers previously integrated into the current account of the balance of payments
30 Banco BPI | Annual Report 2003 Currency market
Repeating the trend observed in the previous year, the Euro exchange rates in 2003 currency market’s behaviour in 2003 was dominated by the USD 1.32 Dollar’s depreciation, especially against the euro. The 2
European currency appreciated by some 21% between 1.24 January and December, although the tendency has not 1.16 always been clear. At the beginning of the year when capital inflows into the US diminished, the dollar was penalised by 1.08 the potential negative impact of accelerated economic 1 1.00 activity on the external deficit. In the meantime, sentiment regarding the Dollar improved between March and JPY 144 September. The formal ending of the war in Iraq, the stock market advances and the strength of the North American 138 economic indicators, in contrast with the signs of recession 132 in Europe, temporarily eclipsed concerns about the deterioration in the imbalances on the public and external 126 accounts. At the end of September, the announcement made 120 after the G7 half-yearly gathering, in which an appeal was Jan.Feb. Mar. Apr. Mai. Jun. Jul. Aug. Sep. Oct. Nov. Dec. made for greater currency flexibility in all corners of the EUR / USD Chart 4 EUR / JPY globe, was interpreted as a formal declaration of the Source: BCE, Reuters. abandonment by the North American authorities of the 1) 1.057: minimum observed in the aftermath of the Iraq War. 2) 1.263: highest ever EUR/USD exchange rate. strong Dollar policy. Thereafter, the European currency’s appreciation gained momentum: the EUR / USD exchange rate climbed from 1.15 at the end of September to 1.26 in the final days of December. It has thus surpassed the inaugural parity of 1.18.
Recently the ECB has been alerting to the fact that the Euro’s rapid appreciation could jeopardise the consolidation of Europe’s economic recovery. Despite the European authorities’ desire to contain the local currency’s upward movement, this trend is expected to continue. In reality, this situation is a response to the need to correct the American external imbalance at a time when the majority of the US’s other trading partners is trying to avoid their respective currencies appreciating.
Report | Background to operations 31 Money market Contrary to relatively consensual expectations at the close of upturn, the high level of households’ indebtedness, and by the 2002 the ECB, confronted by deterioration in economic external and public deficits. Everything points to the Federal conditions in Europe, decelerating inflation and the euro’s Reserve adopting a prudent posture. In Europe, the debility of appreciation, was forced to pursue an expansionist monetary a revival spurred by exports adds fuel to concerns about the policy that resulted in two cuts in the refinancing rate. The impact of the Euro’s appreciation. first (from 2.75% to 2.50%) occurred in March, while the second (which set a new historical minimum of 2%) took Six-month interest rates in 2003 place in June. The ECB’s aggressive stance induced a steep % 2.9 decline in money-market interest rates: the Euribor six-month 1 rate eased from 2.80% in January to 2.03% in June. In the 2.4 2 US, the first six months of the year were marked by the
Federal Reserve’s efforts to ensure an economic upswing. In 1.9 order to achieve this, it cut the fed funds rate in June from 1.25% to 1%, the lowest level since 1958. In the meantime, 1.4 3 in the first half of the year the Dollar’s Libor rate fell by 0.9 around 25 basis points. Jan.Feb. Mar. Apr. Mai. Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Euribor Chart 5 Libor USD In the second half of the year, confirmation of the North Source: BPI, Reuters. American economy’s recovery and the dissipation of the 1) ECB cuts repo rate from 2.75% to 2.50%. spectre of deflation halted the slide in short-term interest 2) Cut in repo rate from 2.5% to 2%, new historical minimum. 3) Cut in fed funds rates from 1.25% to 1%, the lowest since 1958. rates. These began meanwhile to contribute modestly to a change in the direction of monetary policy, notably in the US. Indeed, between June and December, Dollar six-month rates climbed from 1.12% to 1.25%, while Euribor for the same term remained stable at close to 2.17%.
Short-term interest rates are currently languishing at historical lows, presenting zero real levels in Europe and clearly negative ones in the US. Accordingly, the consolidation of economic recovery will tend to dictate higher interest rates, with the result that the next move by the Federal Reserve or by the ECB will tend to follow an upward trajectory. However, the monetary authorities will seek to postpone the reorientation of their respective policies. In the American economy, uncertainty surrounding recovery persists, as borne out by the surplus of installed manufacturing capacity, the labour market’s fragile
32 Banco BPI | Annual Report 2003 Bond market of the last twenty years in which the Treasuries market had Despite the large oscillations which occurred during the its worst performance. Taking into consideration the course of the year, the bond market’s behaviour ended up prospects of inflation-free economic growth, long-term confirming at year’s close the expectations that prevailed at interest rates have been fluctuating lately between a the start of the year regarding the rise in yields. The first half relatively narrow interval whose bottom limit is 4%. of the year was dominated by the increased aversion to risk in the wake of deflationary fears, the geopolitical stage and The strengthening of global economic activity, in tandem the uncertainty surrounding economic recovery. This flight with the deterioration in the public accounts and with fears from risk can be ascribed to a very significant drop in yields of acceleration in inflation, will tend to push yields in the US and in Europe. Between January and June, progressively higher. Although the persistence of low short- American yields on ten-year paper fell from 4.33% to -term interest rates justifies steeply-sloping yield curves, the 3.10%, sinking to a fifty-year low. For their part, equivalent risk of flattening is increasing. European yields dipped from 4% to 3.46%. The deterioration in Germany’s public accounts explains the Ten-year interest rates in 2003 reduction in the rate differential between German debt and % that of peripheral countries throughout 2003. At the present 5.0 time, the spread between Portuguese ten-year treasury bonds
4.5 and German bunds is situated at about seven basis points, while it is expected that this differential will stabilise at
4.0 between five and ten basis points.
3.5
1
3.0 Jan.Feb. Mar. Apr. Mai. Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Portugal (EUR) Chart 6 Germany (EUR) USA (USD)
Source: BPI, Reuters. 1) 10-year rate sank to 3.10%, a value last seen in the 1930’s and 40’s.
In the second half of the year, the robustness of North America’s expansion, the consistent stock market advances and the disappearance of deflationary fears induced a dramatic change of sentiment on the public-debt markets. This transformation materialised in the steep rise in yields (to around 4.60% in the US and 4.50% in Europe in August), accompanied by an upward movement in yield curves. July had the dubious honour of being the month out
Report | Background to operations 33 Equities market The behaviour of the miscellaneous debt market and the The downward movement in the worlds’ equities markets that emerging markets was impressive in 2003, as evidenced by can be traced back to the early months of 2000 finally came to the sharp decline in risk premiums, in particular, with regard an end in 2003. It was also in the opening months of 2003 to those entities with poorer ratings. A climate of low interest that the rally began, propelled by the end of the second Gulf rates in an environment characterised by the improvement in war and the fall of the Iraqi regime. In overall terms, the economic prospects and corporate treasuries, led to the PSI-20 and Ibex 35 indices had posted declines of 44% and search for additional income from riskier assets. At the 34% respectively since the beginning of 2000. present moment, taking into consideration existing spreads, current remuneration levels barely compensate the risk PSI20 and IBEX 35 indexes’ evolution attaching to these assets despite the rating agencies Base 100 150 forecasting an improvement in the credit-risk background. 125
Credit risk premiums in 2003 100 Euro-denominated issues Basis points 75 200
50 150 25 19992000 2001 2002 2003 100 PSI-20 Chart 8 IBEX 35 50 Source: Bloomberg.
0 With the end of hostilities, the markets reacted positively to the Jan. Feb. Mar. Apr. Mai. Jun. Jul. Aug. Sep. Oct. Nov. Dec. signs of economic revival, primarily in the United States. On BBB Chart 7 A the other hand, the effects of cost-cutting measures and the AA consolidation of corporate balance sheets began to make AAA themselves felt, a trend which also benefited from the very Source: Goldman Sachs, Bloomberg. positive interest-rate scenario.
Against this backdrop, there was a greater propensity for risk with investors seeking out high-beta, cyclical and emerging market stocks. The technology, insurance and cyclical industrial sectors were the best performers in Europe in the period between the start of April and the end of the year. Indeed, they ended the year outperforming the other sectors by a significant margin. The emerging markets, namely, those of Latin America, turned in exceptional performances
34 Banco BPI | Annual Report 2003 (+97% on the Bovespa – Brazil – and 44% on the Mexbol – expressive manner than its Portuguese counterpart. This was Mexico –, for example). influenced by the negative trend recorded by one of the companies with the largest capitalisation on the Portuguese The second half of the year was marked chiefly by the market, and by the containment in public investment. American Dollar’s decline. This retreat probably prevented Conversely, the behaviour of Spain’s biggest companies the European markets from registering bigger gains, namely, reflected the country’s better economic landscape and the for the negative repercussions that this had on exporting recovery of the Latin American markets where Spanish companies. The Eurostoxx 50 index advanced 16% in 2003. companies have substantial business interests. In this context, the PSI-20 added 16% in 2003, whereas the Ibex In the Iberian Peninsula, although both markets behaved in rose by 28%. a positive manner, the Spanish market rallied in a more
Equity market indices – annual variation 1997 1998 1999 2000 2001 2002 2003 CAGR1 97 / 03
PSI-20 71% 25% 9% (13%) (25%) (26%) 16% 5% Ibex 35 41% 36% 18% (22%) (8%) (28%) 28% 7% Eurostoxx 50 37% 32% 47% (3%) (20%) (37%) 16% 7% Dow Jones 23% 16% 25% (6%) (6%) (17%) 25% 9% Nasdaq 22% 40% 86% (39%) (20%) (32%) 50% 8%
Source: Bloomberg, BPI. Table 3 Note: local currency indices. 1) Compounded Annual Growth Rate.
On the domestic market, the year was marked by the staging of the first initial public offering (IPO) since 2000 with the public offer for sale of Gescartão on the one hand, and by the successive postponement of the Galp Energia and Portucel privatisations on the other. Another highlight of the year was the integration of the domestic financial markets into the Euronext platform, which in the case of the spot market was concluded in October.
Report | Background to operations 35 Human resources
RATIONALISATION, REJUVENATION AND QUALIFICATION
The BPI Group’s human resources policy remained centred At the end of 2003, the BPI Group’s workforce numbered on the execution of the strategic programme aimed at 7 025, of whom 6 086 were employed at the commercial reducing costs and enhancing efficiency in the period bank – Banco BPI –; 146 at Banco Português de 2002-2004. In order to attain this goal, a programme was Investimento; 196 at various subsidiary companies operating launched in the second half of 2002 for analysing the value in Portugal and 156 at overseas branches and representative added per functional unit (AVA). The relevant execution was offices; while 441 were attached to international activity monitored by an external consultant and developed by (Banco de Fomento Angola). in-house teams. This exercise has provided a forum for the in-depth and detailed discussion about the operating model BPI Group staff complement of the functional units of the BPI Group companies with No. 10 000 operations in Portugal. 8995
8 500 8359 This programme, which complemented the corporate 8123 8239 8106 7695 7576 reorganisation process concluded by BPI in 2002, 7025 contributed decisively to the fulfilment of the human 7 000 resources’ rationalisation and qualification objectives mapped out in the strategic plan for the period 5 500
2002–2004. International activity Domestic activity 4 000 9697 98 99 00 0102 03 Chart 9
BPI Group Employees End-of-period figures Period-average figures
Dec. 2001 Dec. 2002 Dec. 2003 ∆% 02 / 03 2001 2002 2003 ∆% 02 / 03 Domestic Activity Banco BPI 6 699 6 583 6 086 (8%) 6 958 6 494 6 468 0% Banco Português de Investimento 453 200 146 (27%) 444 437 160 (63%) Other subsidiary companies 450 224 196 (13%) 436 413 208 (50%) Subtotal – Activity in Portugal1 7 602 7 007 6 428 (8%) 7 838 7 345 6 836 (7%) Branches and representative offices 163 162 156 (4%) 150 164 161 (2%)
Subtotal – Domestic Activity 7 765 7 169 6 584 (8%) 7 988 7 509 6 997 (7%) International Activity Banco de Fomento Angola 228 286 441 54% 207 258 358 39% Banco de Fomento Mozambique2 113 121 - - 107 112 122 8%
Subtotal – International Activity1 341 407 441 8% 314 370 480 30%
Total1 8 106 7 576 7 025 (7%) 8 302 7 879 7 477 (5%) Note Activity in Portugal Fixed-term contracts 569 359 246 (31%) Temporary employment 111 46 82 78% Branches and representative offices Fixed-term contracts 22 15 13 (13%)
1) Includes fixed-term contracts and temporary employment of persons with no binding work contracts with BPI. Table 4 2) In 2003, Banco de Fomento Mozambique (held 100%) was merged by incorporation into Banco Comercial e de Investimentos SARL, following which BPI now owns a 30% interest in the resulting entity and which since then is consolidated using the equity method.
36 Banco BPI | Annual Report 2003 BANCO BPI Of the total 6 086 Employees working at Banco BPI at the Banco BPI Employees Selected indicators close of 2003, 4 408 were deployed in commercial activity 2002 2003 and 1 678 at central support services. The number of Employees 6 583 6 086 Employees involved in central services was reduced by 15% Higher education 34.5% 37.2% during the course of 2003, with these departments now Average age 40.5 40.3 accounting for 27.6% of the total. Average period of service 15.4 15.1 Men 52.8% 51.9% Women 47.2% 48.1% Banco BPI Employees1, 2 Distribution by area of activity Employees per branch 6.2 5.9 2002 2003 2003 (%) Note 1: does not include automated branches. Table 6 Note 2: in 2002, includes 385 Employees integrated within Banco BPI Retail Branches network3 3 241 3 164 52% through merger or demerger of Group companies. Corporate Centres4 456 434 7% Non-traditional channels5 296 236 4% The drive that resulted in higher productivity and greater Product factories6 519 482 8% competitiveness was also responsible for the important Marketing 93 92 2% investment in funding the additional pension-related Commercial activity 4 605 4 408 72% obligations stemming from the departure – through early Central services 1 978 1 678 28% retirement, pre-retirement or mutual-accord rescissions of Total 6 583 6 086 100% employment contracts – of 534 Employees. The average age 1) Does not include overseas activity. Table 5 2) Includes temporary workers: 43 in 2002 and 82 in 2003. of these Employees was 56; they had worked in the banking 3) Branches, investment centres and respective support structure (Divisions of: Loans to Individuals and Small Businesses, retail network projects, new branches sector for an average of 33 years, while their academic and commercial support). 4) Corporate Centres, wholesale centres and credit risks division. background was largely primary or secondary schooling. 5) Telephone Banking, Internet, Protocol Banking and Automated Banking. 6) Cards, mortgage loan financing (which includes 18 Housing Shops), personal loans and motor-car finance. At the same time, besides continuing to provide a strong incentive for internal mobility amongst personnel, 93 new The appreciable and ongoing investment in IT tools Employees were recruited. These were selected after a developed on the web platform for giving support to the thorough recruitment process that concentrated on the back-office areas contributed in a decisive manner to candidates’ behavioural and technical qualities. In the achieving the efficiency registered. It is important to mention majority of cases, those applying for positions possessed the policy adopted of promoting widespread availability and, higher academic qualifications. at the same time, selective management information on the intranet, so providing a speedier and effective The results of this policy meant that the weight of communication medium. Employees with higher academic backgrounds rose to 37.2%, while the average age and period of service declined to 40.3 and 15.1 years, respectively.
Report | Human resources 37 BANCO PORTUGUÊS DE INVESTIMENTO Also as a consequence of this drive, 28.1% of the The concentration of Investment Banking business – Employees attached to the individuals’ network possess Equities, Corporate and Private Banking – at Banco university degrees, a fact that assumes even more Português de Investimento led to the demerger and merger importance when one considers that at the end of 1999, in 2002 of a part of Banco Português de Investimento’s only 14% of the Employees had a university education. activity at Banco BPI. One of the consequences was the transfer of a group of 54 Employees to Banco BPI in 2003,
Banco BPI Staff Complement Banco BPI Staff complement on top of the passage of 250 people already transferred Distribution by area of activity University degree and average age1 during 2002. The Bank’s staff complement at the end of the
% year had thus stabilised at 146 Employees. 58% 50 50
46.3 Banco Português de Investimento’s structure is supported by 44.7 40 43.5 45 a team of young, highly-qualified personnel with superior 41.5 technical skills – a prerequisite for the provision of a high- 37% 28% 4% 8% 40.3 2% 35% -quality service. In order to be successful creativity and 30 32% 40 innovation are critical factors taking into account the leading 28% 25% position occupied by Banco Português de Investimento in its 20 35 area of specialisation.
Central Commercial services (28%) activity (72%) 1 678 4 408 Banco Português de Investimento Employees 10 30 99 00 01 02 03 Selected indicators 2002 2003
Retail branches and corporate Staff with university degree Employees 200 146 centres network as a % of total Non-traditional channels (left-hand scale) Higher education 78.5% 76.7% Product factories Average age1 Average age 36.0 37.2 Marketing (right-hand scale) Central services Period of service 9.5 10.8 1) Figures adjusted by the number Men 59.0% 56.2% of years elapsed between each year and 2003. Women 41.0% 43.8% Table 7 Chart 10 Chart 11
38 Banco BPI | Annual Report 2003 Training Training activity during 2003 included 814 sessions which On the other hand, 2003 saw the preparation and occupied a total of 61 thousand hours. These courses were implementation of programmes for welcoming and integrating attended by 2 546 Employees, that is, close to 40% of Banco the newly-hired Employees with the overriding object of BPI’s total headcount. reinforcing the message concerning the Bank’s missions and values, as well as with the aim of consolidating and honing the Meriting special mention was the ongoing project focusing on specific skills needed in commercial banking business. behavioural training which, in 2002, involved all the branch network Employees. In 2003, follow-up sessions were held – During 2003, continuity was also given to the policy of lending directed at branch managers – for consolidating concepts and support to scholastic training – essentially to graduates and assessing behaviour in harmony with the methodology adopted post-graduates in the fields of Management and Information in the management of the commercial teams. Systems. Financial assistance was given to 144 Employees who invested in the expansion of their knowledge and skills.
2001 2002 2003
Classroom training Percentage of Employees with training 61.37 60.00 39.36 Employees attending in-house courses (%) 56.84 56.61 37.12 Employees attending external courses (%) 4.52 3.39 2.24 Average no. of training hours per Employee 19.98 27.13 24.02 Average duration of training (hours) 8.10 14.73 6.40 Average sessions per Employee 4.26 6.28 3.13 Percentage of personnel allocated to training (%) 0.28 0.20 0.17 Investment in training as percentage of payroll (%) (training rate) 1.06 1.18 0.67 Investment in training per participant (€) 453.90 538.05 498.26
Support for personal advancement Graduates 150 140 117 Post-graduates 34 40 27
Table 8
Report | Human resources 39 Technology
The information systems are a fundamental element in BPI’s system, multi-channel distribution infrastructure and Web business strategy by virtue of the fact that they ensure presentation layers. Guaranteeing optimum performance and demanding levels of internal productivity and efficiency. robustness are the central objectives of the IT systems’ BPI’s information systems are based on a structure whose design and maintenance. The resulting efficiency and architecture is characterised by the effective integration of availability indices are significant. the different technological platforms: central transactions
Principal indicators of efficiency, availability and performance 2002 2003
Central systems processing capacity (in millions of instructions per second) 610 610 Central and middle-range systems storage capacity (in Terabytes) 15.4 15.9 PC’s per Employee1 1.2 1.3 Employees with access to the intranet and email 100% 100% Number of processes “intranetised” 62% 68% Page views on the intranet, per day 330 000 510 000 Availability of transaction sites 99.8% 99.75% Employees with access to the Internet 20% 33% Page views on the Internet per day (all the BPI sites) 33 500 36 700 Branches: opening before 8 h 30 m 99.2% 99.19% Real time cards: from 7 h till 4 h 100% 100% Response time to transactions at the branches (less than three seconds) 99.85% 99.70% Transactions on the multi-channel platform per day 200 000 250 000 Technological Help desk: resolution of problems in less than two hours2 98% 76%2
1) Including PC’s without specific user and PC’s dedicated to management, monitoring and testing tasks. Table 9 2) The scope of questions broached widened, including issues which surpass the resolution of problems.
During 2003, BPI’s activity in the technology and Work continued on the rationalisation and development of information systems areas was governed by the following the operating systems which make up the back-end lines of action. transactional solution. A case in point was the creation and implementation of inter-application and process-optimisation Business support interfaces for the handling of financial operations. The implementation of improvements in the functioning of alternative transaction channels warranted special attention, Enhanced internal efficiency the main highlight being the launch of BPI Net Empresas – The continued integration of the areas whose mission is the an Internet channel catering for companies and small conception and implementation of IT solutions constituted in businesses. 2003 the single most important factor underpinning the increase in the desired efficiency and quality. BPI’s sales and decision-support tools continued to be the target of improvements, dictated by the ever-increasing Special attention has been paid to the establishment of demands of a commercial, regulatory and risk-control nature. internal functioning rules and methods in these areas. In this
40 Banco BPI | Annual Report 2003 fashion, it is hoped that the projects to be developed are Technological evolution effectively selected and scaled in accordance with the In 2003 and considering the need for the technological respective priority. Similarly, an endeavour will be made to renovation of the platforms distributed amongst the central closely monitor the respective implementation cycle. buildings and the branch network, the architecture and hardware and software systems that will give expression to Security this renewal were analysed, designed and tested. Security constitutes a permanent priority in the management of BPI’s computer systems. In 2003, the contingency plans Turning to the branch network applications, a prototype was covering the most crucial technological platforms were built that will serve as the new business application. The refined, which meant that it was possible to reduce objective is to confirm compliance with the functional and significantly the recovery times and adjust these better to the technical requirements laid down initially. demands of business availability. At the same time, work was carried out on the development of the control system for Given that the results were positive, a start was made to the accessing and using the IT systems (GAS). application’s functional analysis and development.
INTERNATIONALISATION OF STOCK MARKET DEALING 2003 witnessed the conclusion of BVLP’s integration in the maintained operational right from the first minute of pan-European trading platform Euronext. BPI – whose tradition 7 November 2003 (the migration day). The solutions in this business is considerable – accompanied the entire implemented endowed the Bank with the indispensable process of migration and technological adaptation on the front infrastructures that will permit integrated dealing on the line. The project was enveloped by a certain degree of world’s various stock exchanges, either directly as market complexity given that it was necessary to implement it in a members or through local brokers. BPI’s accession to the short period of time. The Bank had to assume complete Madrid Stock Exchange is scheduled to take place next year, responsibility for mounting the IT solutions, contrary to what as is the commencement of activity as a member with direct would happen with the national stock exchange (the BVLP) access to the Euronext’s other markets (Paris, Amsterdam and and, no less important, the migration model adopted was the Brussels). Such accession will not imply major developments big bang type (trading and clearing), which is unique in the or sizeable investments in technology. Euronext’s integrations. Despite all these hurdles, BPI
Report | Technology 41 NEW IT SYSTEMS IN BANCO DE FOMENTO ANGOLA Availability of structural solutions Besides having dealt with the purely application and With the opening of the new Banco Fomento Angola (BFA) transaction aspects of the solution, a network structure was head-office building, in July 2003, the information systems also implemented which will ensure the necessary security in were virtually all remodelled. Personal computing solutions and solutions such as this one. telecommunication structures were installed which allowed the creation of a network environment and facilitate e-mail; data Foreign operations servers, security systems and secure access to the exterior were In order to provide support for market activity, the Eximbills installed. BFA’s central, production and back-up systems were application was introduced and the necessary interfaces also upgraded. The technology and programmes currently in developed with the Bank’s central application and with the use are amongst the most recent available from IBM, which Swift system. It was thus already possible to implement permitted guaranteeing the system’s operability despite the solutions for payment orders issued, payment orders received, significant increase in users and premises (27 branches). the issue of bank cheques, as well as an automatic incoming / outgoing interface with Swift. A start was made to a study for A Data Processing Centre was created with the object of the implementation of documentary operations, of which the safeguarding all the operating and security functions of the first involved cheques for collection. information systems. Personalisation of documentation BFA’s information systems are founded on an architecture Implementation of a document printing system linked to BFA’s centralised on the transactions platform. Much of the activity information system. Besides the significant gains obtained on is realised in a native environment over the central system’s pre-printed documents, it was also possible to improve the applications, while the graphic environment is available at the Bank’s image amongst its Customers. branches. Increase in internal efficiency Intranet The central system was upgraded with the implementation of The structural evolvement of BFA’s information systems an IT solution, Promosoft – AsM, a programme for handling enabled the creation already in 2003 of a platform for an fixed asset management. intranet, supported by the central system. In this first phase, this provided a structure which serves as a base for content Personnel from the technical area received training in Portugal and procedures. in order to become conversant with the solutions developed and implemented, as well as updating their knowledge of the BFA Online central system and the Windows environment. At the end of 2003, work was concluded on defining the parameters of the BFA Online solution. In the initial phase, a The domiciling of accounts began to be distributed series of operations were made available to registered-user electronically thanks to the development of a functionality Customers, namely, consultations and access to the Bank’s aimed at Customers and branches. Paper consumption, postal web site. difficulties and lost mail are therefore avoided.
42 Banco BPI | Annual Report 2003 Operations
In recent years, the BPI Group has adhered to a policy that The costs associated with the motor fleet were reduced by advocates the centralisation of purchases, thereby promoting 10%, with the substitution of the operating rental scheme greater efficiency in the negotiation of prices and conditions for the direct purchase model. Motor-vehicle fleet costs with the Group’s main strategic partners and suppliers. In began to be subjected to more rigorous control, notably, the this manner, it has been possible to reduce operating costs establishment of maximum fuel allowances and alterations significantly. The following were the most noteworthy cost to the insurance-policy excesses borne by BPI. savings achieved by business areas (2001-2003):
Travelling and accommodation expenses were reduced by
Computer-related costs decreased by 11%, due 25%, which was essentially influenced by the policy of fundamentally to the adaptation of the portfolio of strong cost containment adopted in this area. contracts to BPI’s real requirements. Continuity was given to the external contracting of certain
Communication costs were cut by 24%, as a result of the activities – outsourcing –, in accordance with the programme rationalisation of access to telephone networks and the embarked on in 2000, thus permitting a greater implantation of links at the central buildings in such a concentration of resources on core banking activities. manner as to transform communications between fixed and Simultaneously, it was possible to trim operating costs and mobile terminals into communications between mobile improve the quality of services provided. terminals. In the commercial network, cost-reduction mechanisms directed at voice communications to the In this context, work progressed on the outsourcing of various mobile operators were created and the tariffs for cleaning and security services. data circuits renegotiated. In addition, the internal mail system was rationalised resulting in the elimination of It was also possible to reduce the workforce employed in the circuits and mail houses. operations area by 100, corresponding to a decrease of 27%. The prime motive was essentially a process of internal
14% drop in office material costs through the rationalisation of circuits and procedures. standardisation of office stationery, forms, refreshment and hygiene articles, thereby avoiding expenditure on materials On the operational front, 2003 saw the consolidation of the considered to be surplus to the Bank’s activity. This integration carried out at the beginning of the year under process is founded on a model of outsourcing all facets, review of the BPI Group’s restructured companies. ranging from supply to the distribution to the Bank’s various premises. Work advanced on the project aimed at rationalising forms with a view to curbing the range and the selection of alternative, less expensive office stationery. Purchases are now made from the same partner, thereby taking advantage of the logistical synergies of merchandising materials.
Report | Technology and Operations 43 Commercial Banking
INDIVIDUALS AND SMALL BUSINESSES BANKING
OVERVIEW
Banco BPI’s Individuals and Small Businesses Banking was The launch of a network of external promoters composed of responsible for a loan portfolio of EUR 10 137.5 million and business partners who, together with the Bank, have as resources totalling EUR 14 543.5 million at the end of their goal signing up new Customers and new business. At 2003. The annual rate of growth in 2003 was 13.1% for the end of the year, this network comprised 250 promoters. loans and 4.9% for resources.
The conception and execution of 100 commercial
Principal business indicators Amounts expressed in millions of euro initiatives which resulted in two million contacts, of which 2002 2003 ∆% 23% were made via telemarketing and the remainder at Loan portfolio 8 959.5 10 137.5 13.1% the branches. In all, some 800 thousand Customers were [of which], mortgage loans 6 512.5 7 582.1 16.4% involved. Ratio of loans in arrears for more than 30 days 1.1% 1.3% -
Total Customer resources 13 859.5 14 543.5 4.9% Loans and guarantees Customer resources
Balance sheet resources 9 871.7 9 742.7 (1.3%) Bi.€ Bi.€ Off-balance sheet resources 3 987.8 4 800.7 20.4% 12 16 14.5 Table 10 13.9 10.1 13.4 12.4 9.0 Individuals and Small Businesses Banking Customers 9 12 11.6 2002 2003 7.5
No. of Customers (in millions) 1.3 1.3 5.9 6 No. of active Customers (in millions) 1.0 1.0 8 Average amount of loans and resources 4.3 per Customer (in thousands of euro) 21.9 23.5 Table 11 3 4
In 2003, the following Individuals and Small Businesses
Banking commercial and marketing initiatives merit special 0 0 99 00 01 02 03 99 00 01 02 03 mention.
Other loans and guarantees Off-balance sheet Customer Mortgage loans resources The expansion of BPI’s Investment Centre network whose On-balance sheet Customer resources primary mission is providing a personalised financial Chart 12 advisory service to wealthy individual Clients. 2003 saw Chart 13 the opening of eight new Investment Centres as a result of which at the end of December, this network comprised eleven fully-functioning Centres, all of which located in the country’s major cities – Lisbon (3), Oporto (2), Braga, Aveiro, Coimbra, Leiria, Viseu and Évora.
44 Banco BPI | Annual Report 2003 CUSTOMER RESOURCES The overall positive behaviour of Customer resources in 2003 Sight deposits grew by 3.8%, whereas time deposits is associated above all with the 20.4% growth in off-balance contracted by 2.5%. sheet resources. Also worth noting were the increases of 22.3% in unit trust (mutual) funds and 29% in the capitalisation (unit linked) insurance portfolio.
Individuals and Small Businesses Banking – Customer resources1 Amounts expressed in millions of euro 1999 2000 2001 2002 2003 ∆% 02 / 03 Balance sheet Sight deposits 2 101.5 2 297.1 2 605.3 2 589.4 2 687.5 3.8% Time deposits 4 868.1 5 055.2 5 696.3 5 901.3 5 754.9 (2.5%) Bonds placed with Customers 271.7 386.3 491.0 585.0 740.9 26.7% Structured products2 709.9 884.1 853.3 796.0 559.5 (29.7%)
Subtotal 7 951.2 8 622.6 9 645.9 9 871.7 9 742.7 (1.3%) Off-balance sheet Unit trust (mutual) funds 1 863.7 1 925.9 1 981.3 1 982.2 2 424.5 22.3% PPR and PPA3 1 022.4 1 060.4 1 045.1 1 095.9 1 202.7 9.7% Capitalisation insurance 734.1 795.3 749.1 909.7 1 173.6 29.0%
Subtotal 3 620.2 3 781.6 3 775.5 3 987.8 4 800.7 20.4% Total Customer resources 11 571.4 12 404.2 13 421.4 13 859.5 14 543.5 4.9%
1) Does not include securities portfolio. Table 12 2) Guaranteed-capital and limited-risk bonds indexed to the stock markets. 3) Retirement Savings Plans and Equity Savings Plans.
BPI SALARY ACCOUNT The domiciling of Customers’ salaries at BPI constitutes an automatic access to an overdraft on the current account at important commercial goal of the Bank to the extent that it attractive rates and direct subsidies on personal credit and on affords added opportunities for boosting Customer loyalty. BPI motor car finance.
At the end of 2002, BPI reformulated the range of salary Fruit of the above strategy, the number of Customers with accounts through the launching of the salary accounts BPI salary domiciliation at BPI rose by 39% to 165 thousand at no.1 and BPI gold, linking these to a number of advantages the end of 2003, of whom 65% opted for the automatic that make them particularly attractive: exemption from domiciliation of salaries. maintenance expenses, remuneration of the daily balance on a sliding scale basis, offer of the first annual credit card fee,
Report | Commercial Banking 45 CUSTOMER LOANS
Loans advanced to individuals and small businesses contributing 91% to the growth observed. Accordingly, the amounted to EUR 10 137.5 million in December 2003, weight of home loans relative to the total portfolio of loans to registering annual growth of 13.1%. Home loans continued individuals and small businesses climbed from 72.7% to to be the motor driving the expansion in lending, 74.8%.
Individuals and Small Businesses Banking – Customer loans Amounts expressed in millions of euro 1999 2000 2001 2002 2003 ∆% 02 / 03
Mortgage loans1 2 751.8 3 806.6 5 144.5 6 512.5 7 582.1 16.4% Personal loans 352.0 487.9 491.2 449.7 447.9 (0.4%) Credit cards2 98.8 123.8 134.8 140.0 153.6 9.8% BPI car finance3 121.1 169.6 151.0 216.0 227.6 5.4%
Commercial loans4 719.2 958.0 1 154.9 1 175.1 1 231.3 4.8% Equipment and property leasing3 162.3 241.8 306.9 331.7 352.3 6.2% Bank guarantees 90.2 105.2 127.1 134.5 142.7 6.1%
Total 4 295.5 5 892.9 7 510.5 8 959.5 10 137.5 13.1%
1) Loans secured by fixed property. Corresponds primarily to home loans and loans for home alterations. Table 13 2) Includes outstanding credit of non-Bank Customers. 3) Includes motor car financing and leasing originated by Individuals and Small Businesses Banking. 4) Includes overdrafts, current accounts loans, discounted bills receivable and other loans which form part of the loans products tailored mainly for sole traders and small businesses.
Home mortgage loans The mortgage loan portfolio grew by 16.4% in 2003 to reach Market share in new lending business rose to 12.8% in EUR 7 582.1 million at the end of the year. On that date 2003, up on the previous year’s percentage share of 12.3%. and considering the portfolio balance, BPI attained a market Loans contracted in the year fell by 5.9% to EUR 1 717 share of 9.8%1, well above BPI’s share of 6.1% five years million when compared with 2002. This figure is, however, ago. This increase is the result of the priority which in less than the estimated 10% contraction for the market, a commercial activity BPI has attributed to the growth in this reflection of the more unfavourable economic environment business segment, as well as the Bank’s assertion in the and the extinction in September 2002 of a specific market market as a specialist in this loan product. segment – loans to low-income families subsidised by the State.
1) Taking into account a market consolidated loan book including securitised loans.
46 Banco BPI | Annual Report 2003 At the end of 2003, the average relationship between loan application of a pricing structure which reflects risk portfolio financing and associated security (loan-to-value) premiums (founded on a grid of predefined spreads was 64%1, while new loans were contracted in 2003 with a according to the relationship between financing and security lower ratio: 59%. on the one hand, and the amount of the financing on the other), BPI stepped up the stringency of loan approval
Home mortgage loans criteria: 2002 2003 ∆%
Loan portfolio The safety margin added on to the effective rate of interest Balance on loan portfolio (M.€)6 512.5 7 582.1 16.4% on each operation for the purpose of assessing the risk of Market share – portfolio balance1 9.2% 9.8% Loan-to-value ratio 65% 64% - each loan was raised from two to three percentage points. Average amount per contract This is done in order to evaluate each borrower’s capacity (in thousands of euro) 45.6 46.7 2.4% to assume debt-servicing obligations within the context of Ratio of loans in arrears for more than 30 days 0.7% 0.9% - higher interest rates; Loan contracting Loans contracted in the year (M.€)1 824.7 1 717.0 (5.9%) The minimum requirements in terms of households’ net Market share – contracting 12.3% 12.8% - disposable income were increased for loan approval; Loan-to-value ratio 62% 59% - Average amount per contract (thousands of euro) 56.3 60.0 6.6% The decision process for approving loans now embraces Average period of loan (in years) 25 28 - socio-demographic indicators relating to the region where 1) Market value includes securitised loans. Table 14 the proponent lives, as well as risk indicators covering the Still in 2002 and towards the end of the year, BPI extended borrower’s employer. the maximum period of mortgage loans to 50 years, although imposing a limit of 70 years of age for borrowers at the end The contribution of the specialised sales channels – housing of the loan term. The Bank also fixed more restrictive shops, branches with home-loan areas and real-estate agents specific limits in the maximum relationship between – continued to be a determining factor for the performance financing and security. registered. Overall, they were responsible for the contracting of 47% of total new loans. In February 2003, BPI added to its range of home-loan products a variant which, by including a credit protection New mortgage loans contracted by specialised channels insurance policy, permits a maximum relationship between 2003 # Contracting Total % financing and associated security of 100%, provided that the per unit contracting (M.€) (M.€) purpose of the loan is to finance a person’s own permanent Housing shops 19 8.0 148.5 9% housing and the term does not exceed 40 years. Branches with home-loan areas 64 5.4 345.0 20% Real-estate agents - - 309.3 18% In parallel with the adaptation of the product range and the Other branches 432 2.1 914.2 53% Total - - 1 717.0 100%
Table 15 1) At the date the contract is signed / entered into.
Report | Commercial Banking 47 BPI’s affirmation also extends to the Internet. BPI has the BPI Imobiliário – principal indicators largest online data base in the country of properties and real- 2002 2003 ∆% No. of property announcements 200 th. 281 th. 41% -estate developments for sale on the BPI Imobiliário site. At No. of partners 1.2 th. 1.5 th. 25% the end of 2003, it had 1.5 thousand partners and 281 No. of page views on average thousand property sale announcements, 25% and 41% more per month 1.9 million 2.6 million 37% than a year ago. In 2003, the site’s pages were viewed on No. of email messages sent to subscribers to the alert service 735 th. 528 th. (28%) average 2.6 millions times a month (37% more than in No. of requests for visits made via the site 15 th. 17 th. 12% 2002). Table 16
HOME MORTGAGE LOANS Interest rates modes Spreads BPI’s home loans offer four interest rate options, allowing the The fixed rate, or the spreads associated with the benchmark Customer to opt for the one which best suits his expectations in the case of variable rate, depend on the amount to be regarding market trends: financed and the relationship financing / security, with a maximum ceiling of 90%.
Variable rate, indexed to Euribor, which is adjusted periodically to market interest rates, with consequent Protection insurance alterations to the monthly instalment; The loan protection insurance product (payment plan) permits a finance / security ratio of up to 100%, in cases where the
Variable-rate with fixed instalment indexed to Euribor, where loan is for one’s own permanent residence and the loan term the periodic adjustment to the trend in market interest rates does not exceed 40 years. is reflected in the operation’s maturity term, increasing or reducing it in such a way as to maintain the amount of the Specific solutions monthly instalment constant; BPI’s home-loan product range also contemplates specific solutions for house exchange, advances for house deposits or
Fixed rate at 10, 15, 20, 25 or 30 years, depending on the advances during the construction phase, as well as a package life of the loan; of associated insurance policies (life multi-risk insurance with cover for seismic phenomena, credit protection, and works and
Guaranteed maximum rate indexed to Euribor, similar to the mounted installations). variable rate, but with the definition of a maximum figure which the rate can reach in the first three or five years. Information Given the importance of providing Customers homogeneous, Payment modes transparent and comparable information before the contracting The operation’s maximum term varies in accordance with the of a home loan, BPI adhered to the European Code of mode selected, between 20 years (in variable rate with fixed Voluntary Conduct. instalment) and 50 years (in variable rate), provided that at the end of the loan, the borrower is less than 70 years of age.
48 Banco BPI | Annual Report 2003 Personal loans Commercial credit and leasing The personal loans portfolio decreased by 0.4% in 2003, The portfolios of commercial credit and equipment and real- with 6.5% growth in one of its components – consumer -estate leasing registered growth rates of 4.8% and 6.2% credit – being offset by a reduction of 81.4% in loans for the respectively in 2003. Contributing meaningfully to this result acquisition of securities. At the end of 2003, personal loans was the policy of forging partnerships with companies and represented 4.4% of loans advanced to individuals and small business associations, as well as the participation in a businesses, and 2.6% of BPI’s total loans. number of investment-support programmes, namely, PRIME (formerly the POE). In 2003, the contracting of consumer credit was up 20.2% on the preceding year, while contracting of loans for the Amongst the partnerships formed with companies, special purchase of securities was nil. reference is made is the one entered into in April with John Deere, which enables entities in the agricultural sector to
Personal loans Amounts expressed in millions of euro acquire this company’s equipment under special financial 2002 2003 ∆% conditions. At the end of the year, 172 operations had been Loan portfolio contracted worth EUR 4.42 million, with the approval rate Consumer credit 414.3 441.3 6.5% being situated at 76.4%. Loans for acquisition of securities 35.4 6.6 (81.4%)
Total loan portfolio 449.7 447.9 (0.4%)
Ratio of loans in arrears for Commercial credit and leasing Amounts expressed in millions of euro more than 30 days 2.3% 3.1% - 2002 2003 ∆% Loan contracting Loan portfolio Consumer credit 178.5 214.7 20.2% Commercial credit1 1 175.1 1 231.3 4.8% Loans for acquisition of securities 0.01 - - Equipment and real-estate leasing 331.7 352.3 6.2% Total loans contracted 178.6 214.7 20.2% Bank guarantees 134.5 142.7 6.1% Average period of loan (in years)1 4.8 5.3 Total loan portfolio 1 641.3 1 726.3 5.2% 1) Average period weighted by the amounts; excludes loans Table 17 for the acquisition of securities. Ratio of loans in arrears for more than 30 days 2.5% 2.3% - 1) Includes overdrafts, current account loans, discounting of bills Table 18 of exchange and other loans which form part of the loan products designed primarily for sole traders and small businesses.
Report | Commercial Banking 49 Motor car finance Individuals and Small Businesses Banking was responsible 15% was contracted within the ambit of partnerships with for 39% of the Group’s motor-car finance portfolio at the end mono-brand dealers, and 41% resulted from multi-brand and of 2003. general dealers.
Motor car finance advanced to individuals and small At the end of 2003, the Group’s overall portfolio of motor car businesses climbed to EUR 227.6 million at the end of finance amounted to EUR 577.2 million, which represents 2003, that is, 5.4% more than in December 2002. an increase of 10.6%, in relation to 2002.
Credit contracting in 2003 totalled EUR 136.6 million, The contracting of credit in 2003 amounted to EUR 247.8 which represents growth of 12.9% relative to 2002, at a million, down 12.2% on the previous year. time when the light passenger-vehicle market continued to record a strong contraction with the number of vehicles sold dropping by 16%. MOTOR CAR CAMPAIGNS 2003 was marked by the launching of mono-brand Motor car finance advanced by campaigns and by the success of the SMART campaign. Individuals Banking Amounts expressed in millions of euro The mono-brand campaigns offer Customers more 2002 2003 ∆% advantageous conditions in the acquisition of vehicles Loan portfolio than they would obtain directly from the dealer. In Long-term rental 83.6 79.9 (4.4%) addition, the penetration rate of BPI motor car financing Credit 52.6 67.1 27.6% increased in the main brands, resulting in the attraction Leasing 79.9 80.7 1.0% of new Customers to the Bank. Total loan portfolio 216.0 227.6 5.4% Ratio of loans in arrears for more than 30 days 0.6% 0.8% - In the campaign period (July to November 2003), sales
Credit contracting of Smart cars grew by 65% relative to the same period a Credit contracted in the year 121.0 136.6 12.9% year earlier, with Banco BPI approving 480 proposals. Table 19 This number corresponded to 45% of the total number of Smarts sold in the campaign period. 126 new accounts BPI’s motor car financing business includes, besides credit were opened, corresponding to 27% of the campaign to individuals and small businesses, credit extended to Customers. companies and is managed in an integrated manner by a specialised unit.
Besides the retail and corporate centre networks, BPI has entered into partnerships with the official importers of car makes and with large groups of multi-brand dealers. In 2003, the retail network contracted 28% of the finance operations, the Corporate Bank network contracted 16%,
50 Banco BPI | Annual Report 2003 Credit cards Debit cards The number of credit cards placed with Banco BPI The number of debit cards placed climbed by 8% to reach Customers rose by 12% to 420 thousand in December 774 thousand cards at the end of the year, giving BPI a 2003. Market share was situated at 12.8%1 at the close market share of 8.8%. Debit card billings totalled EUR of 2003. 2 571 million in the year, up 4% on the corresponding figure of 2002. Accumulated billing was EUR 732.5 million, 5.5% higher than in 2002. Debit cards 2002 2003 ∆%
No. of cards at the end of the year The most salient aspects in 2003 were: (thousand) 715.3 773.7 8.2% Market share 8.2% 8.8% -
The relaunching of the Prémio card based on the multi- Billing (M.€)2 464.1 2 571.1 4.3% -image concept; Table 21
The launching in June of the Zoom card, an innovative product which combines the features of revolving credit with those of instalment credit;
The launching in July of the Euro 2004 card.
Credit cards 2002 2003 ∆%
No. of cards at the end of the year (thousand) 374.7 419.9 12.0% Market share 12.7% 12.8% - Billing (M.€) 694.6 732.5 5.5% Credit1 (M.€) 140.0 153.6 9.8% Ratio of loans in arrears (more than 30 days) 5.8% 5.8% -
1) Outstanding credit. Table 20
1) Market share in the Visa and Mastercard card versions in which BPI competes.
Report | Commercial Banking 51 DISTRIBUTION NETWORK At the end of 2003, the Individuals and Small Businesses network served some 1.3 million Customers. It comprised 483 traditional branches, 13 in-store outlets, a specialised network for home loans with 19 shops, 11 investment centres dedicated to wealthy Clients and a 47 automated shops network launched in 2003 of external promoters which at the end of the year embraced 250 promoters.
Viana Distribution network 12 2002 2003 Braga Vila Real Bragança Traditional branches 483 483 31 8 7 Housing areas 64 64 Porto Internet arears 286 310 89 In-store outlets 13 13
Housing shops 18 19 Viseu Aveiro 13 Investment centres 3 11 34 Guarda 9 Automated shops 47 47 External promoters - 250
Table 22 Coimbra 18 Castelo Branco 8 Leiria 19
Santarém 17 Portalegre 4 Lisboa 143
Évora 6 Açores 5 Setúbal 41
Beja 7
Faro Madeira 18 7
Figure 0
52 Banco BPI | Annual Report 2003 The management of the distribution network has focused on Human capital at the distribution network1 bolstering its commercial capacity, enhance efficiency and 2002 2003 operating capability, and promoting service quality. In this No. of Employees at the retail branch network1 3 047 2 908 regard, the following were the most salient aspects: Average no. of Employees per branch 6.2 5.9 Average age 40.1 40.1 the availability specialised attendance areas at the traditional % of Employees with higher education 26.5% 28.1% branches. At the end of 2003, there were 64 branches with Men 54.9% 52.7% separate home-loan areas and 132 with special facilities for Women 45.1% 47.3% serving small business Customers; Service quality index (IQS) at the branches 854.0 875.0
1) Employees at traditional and in-store branches. Table 23 the gradual implementation of the new model branch which,
with fewer physical barriers between Customer and Employees per branch Employees with university Employees, stimulate an attitude oriented towards improving degree productivity and better quality service. During the course of No. % 7.0 30 2003, 74 branches were remodelled, bringing the number 28.1 26.5 fitted out with the new image to 101;
6.5 6.4 21.0 21.6 encouraging greater adherence to the alternative channels. In 6.2 20 this respect, Banco BPI had 310 branches at the end of the 6.16 6.0 year with dedicated internet facilities and 119 branches with 6.0 14.0 5.86 self-service solutions (which are equipped with 115 deposit
machines and 50 cheque-dispensing machine), thereby 10 allowing Customers to effect a broad range of transactions in 5.5 a simple and speedy manner, as well as offering them extended opening hours. 5.0 0 99 00 01 02 03 99 00 01 02 03
the availability of 240 branches with teller counters equipped Chart 14 Chart 15 with cash-dispensers, of 47 are recycling machines, thereby promoting greater process simplification in tandem with higher security.
extending the centralisation of phone calls to a further 26 branches, bringing the total number of such branches to 305, which corresponds to more than 50% of the distribution network.
Report | Commercial Banking 53 VIRTUAL NETWORK The virtual channels constitute an important factor in boosting Virtual distribution network Amounts expressed in millions of euro ∆ the Bank’s efficiency. By transferring low-value operations to 2002 2003 % the virtual channels, automating processes and supplying Automatic bank (number of ATM) 1 107 1 118 1.0% BPI Directo information electronically, the physical network is able to focus Subscribers 323 th. 464 th. 44% on selling activity on the basis of personal contact and service Active users1 206 th. 264 th. 28% quality. BPI Net Subscribers 323 th. 464 th. 44% BPI Net and BPI Directo Particulares Active users1 148 th. 223 th. 51% Since their launch at the beginning of 2000, homebanking BPI Net Empresas Subscribers2 - 13.8 th. - services for individuals – BPI Net – and telephone banking – Active users1, 2 - 4.9 th. - BPI Directo –, have consistently registered significant increases BPI Net Negócios in the number of users and transactions. Subscribers - 23.8 th. - Active users1 - 20.3 th. - At the end of 2003, 378 thousand Customers were active 1) Service subscribers who changed the password initially Table 24 attributed, have already used the service and remain active. users of the BPI Net / BPI Directo services, which corresponds 2) BPI Net Empresas also has 2.7 thousand Corporate Banking Customers to growth of 29% relative to 2002. BPI Directo registered 264 who subscribed to the service, of whom 2 thousand use the service. thousand active users (+28% on 2002) and BPI Net 223 thousand (+51% on 2002). BPI Net and BPI Directo BPI Net and BPI Directo Subscribers with altered password1 Transactions and consultations
BPI Net Empresas / BPI Net Negócios No. Millions 400 30.0 2003 saw the launch of the service BPI Net Empresas, an 378 Internet Home Banking service directed at Corporate Customers, supported by the same IT service infrastructure as 300 292 22.5 the one for Individuals, in parallel with the launching of the 259 specialised telephone-attendance line for answering questions 230
about this Service. This represented an important advance in 200 15.0
internet banking service previously provided to small, medium 146 and large-sized companies. 100 7.5
At the end of the year, 48% of the commercial companies (Customers of Individuals and Small Businesses Banking) had 0 0 already adhered to BPI Net Empresas or BPI Net Negócios. In Jun Dec Dec Dec Dec 00 01 02 03 00 00 012 02 03 BPI Net Empresas, 35% of the subscribers were active users whereas in BPI Net Negócios the corresponding figure was Transactions Consultations 85%. Chart 16 Chart 17
1) A single contract and password, valid simultaneously for BPI Net and BPI Directo. 2) In August 2001, it was made the write-off of all subscriptions of Clients that until 15 March 2001 had never accessed to BPI Net / BPI Directo or, even having, done no consulting or operation in those channels during the 6 months before. There were in this situation around 90 000 Clients.
54 Banco BPI | Annual Report 2003 BPI’s virtual channels registered a continued growth in both Centralisation of Customer and Employee attendance the number of users and transactions. It is worthwhile Banco BPI manages in a centralised manner Customer highlighting the trend in the following activities: Direct attendance originating from the various channels (internet, Banking Services, Centralisation of Customer and Employee telephone, iTV, SMS) and which is based on the Content Attendance, Provision of Information and Sale of Products and Management and Handling of Questions and Complaints Services. systems, supported on single information data bases.
Banking services and migration of low value added transactions Help Desk – 21 thousand incoming calls in December 2003, Deposits and cheques dispensers that is 215% more than one year ago, a situation stemming At the branches where these machines were installed, this from the centralisation of the Help Desks; entailed the migration of about 40% of deposit operations and
47% of cheque requisitions. Centralisation of branches – some 331 thousand calls in 2003, resulting from the service extension to 305 branches Internet Areas at the branch network (more than 50% of Banco BPI’s total branches); In 2003 there was an increase of 127% in the monthly
accesses to Internet Areas. In December alone each area was Centralisation of alerts and collections – 11 thousand accessed on average 266 times. contacts with Customers.
BPI Net and BPI Directo Particulares
1 180 thousand monthly accesses1 to BPI Net, up 84% Centralisation of telephone calls attendance year-on-year; Branch network coverage1
% 1 3.2 million transactions per month , equal to a 79% 75 year-on-year increase; 310 279 285 2.6 million calls received through BPI Directo in 2003; 256 50
average of 11.1 thousand calls received per business day; 212
72% of the calls received were attended in less than 20 25 135 seconds by BPI Directo;
69% of the requests made through BPI Directo received a
response by way of automatic attendance. 0 Jun Dec Jun Dec Jun Dec 01 01 02 02 03 03 BPI Net Empresas / BPI Net Negócios 1) Traditional and in-store branches. 6.6 million page views in 2003; Chart 18
825 thousand consultations and 150 thousand transactions in 2003.
1) Registered in December 2003.
Report | Commercial Banking 55 Information Product Attendance Lines
Information sites availability of specific information lines for Credit Products Recourse to BPI’s information sites in 2003 continued to (Home Loans, Consumer Credit, Motor Car Finance), Unit register high growth: Trust Funds, Investment Products and Internet Sites.
20.7 million page views for all the Sites in December 2003 – 125 thousand calls received on the information lines – up 69% on the same period last year; variation of 51% on previous year;
1.8 million accesses in December 2003 – 77% more than the same period last year; Sales
281 thousand properties available on the BPI Imobiliário site In this area, of special note was the launching of the Clube – an increase of 41% on last year; BPI and the dynamic development of the Telemarketing, Email
528 thousand emails sent to subscribers to BPI Imobiliário and SMS channels (the latter started up in the last quarter of site’s Alert Service; 2003). As sales channels, they take advantage of their specific
17 thousand requests to visit properties effected via the BPI features, notably, the high degree of interactivity and the lower Imobiliário site (year 2003) and forwarded to the Real Estate costs vis-à-vis the traditional channels. In addition, they ensure Partners, principally Estate Agents – up 12% on the same the integration of these channels’ commercial policy within the period last year; overall ambit of BPI’s Sales policy.
BPI Imobiliário Clube BPI Properties available on the website In this sales activity, a highlight was the launching of an No. Electronic Shopping Site for Individuals – Clube BPI –, a 300 281 special channel for disclosing BPI products relating to 250 consumption – Personal Credit and Credit Cards – and which counts upon the collaboration of selected partners for the high 225 199 quality of the services they provide and the degree of technological development.
150 146 119 This Site has as its underlying mission the creation of 90 synergies between BPI and its Partners, conjugating the high 75 adherence by BPI Customers to the services made available on 41 the Internet, with the partners’ experience in the sales of products via this Channel. 0 Dec Jun Dec Jun Dec Jun Dec 00 01 01 02 02 03 03 In 2003 were made 97 Outbound campaigns, through the Chart 19 various Channels – Telemarketing, E-mail and SMS and 1.8 million contacts made.
56 Banco BPI | Annual Report 2003 BUSINESS AND SALES SUPPORT Internal growth potential Banco BPI now possesses an important instrument that The PIC is the result of several years of research carried out by enables it to ascertain in relation to each one of its existing the CRM team, and aggregates the information concerning Customers the Internal Growth Potential (Portuguese initials behavioural models developed internally and various market PIC), measured in terms of both Potential Cross Selling and surveys. Customer share (Share-of-Wallet).
Internal Growth Potential Calculation of the Internal Growth Potential (PIC) is cross-selling work of each branch within its existing effected on the basis of outside information obtained from Customer base. market studies – permitting the definition of market size and the creation of objective benchmarks – and internal Additionally, the present level of Share of Wallet is information gathered from statistical models of propensity estimated for each Bank Customer and constitutes an for the purchase of products by each Customer of the Bank important measurement for defining the potential each – based on his involvement, transaction behaviour and Customer still has for the attraction of resources. socio-demographic profile. With the support of the Commercial Network to explore the Internal Growth Potential is calculated for each level of the potential, all this information will be made available via organisation, from the branch through to the entire the sales-support systems. network, representing an important reference point in the
Calculation of growth potential Definition of growth objectives Support to branch sales
Current placement vs. potential growth Market Studies by product Which products are preferred by each Customer?
Statistical models of propensity to Banco BPI Which Customers have more by region propensity to buy a particular Growth strategy product? by area
Internal growth potential by product, by branch What is the current Share-of-Wallet segment and Customer of each Customer?
Figure 4
Report | Commercial Banking 57 SERVICE QUALITY INDEX The Service Quality Index (Portuguese initials IQS) is a form of In addition, measures were taken to make the branches more measuring quantitatively Customer satisfaction with the service comparable: the factors which cannot be controlled by the provided by Banco BPI and involves the following three branch and with the most influence in terms of Customer components. satisfaction (ex.: number of cash movements of non-Bank Customers of the branch being studied), and a correction
IQS Competition – Biennial survey of roughly 2 000 bank coefficient was applied so as to contemplate the effect of these Customers aimed at assessing the Bank’s positioning vis-à-vis variables on the final IQS of the branch. the competition.
IQS Bank – Annual survey of 5 000 Banco BPI Customers for Disclosure of quarterly results the purpose of evaluating the level of the Bank’s service The results of the quarterly surveys are published regularly on quality from the standpoint of an organisation. BPI’s intranet and constitute an important management
IQS Branch – Quarterly poll of 15 000 Banco BPI Customers information source as they allow each branch to monitor their with the object of assessing the quality of service provided by Customers’ perception of service quality and so adjust this each branch. The results are determined and published accordingly. quarterly taking into consideration the results of the last two polls, that is, 30 000 Customer replies. Overall conclusions of IQS-Branch for the 4th quarter of 2003 The level of BPI Customer satisfaction in terms of dealings Methodology for the indicator’s construction with the branches rose in all the quarters of 2003, attaining At the beginning of 2002, a vast number of interviews were in the 4th quarter of 2003 a growth rate of 2.5% when conducted with Customers and non-Bank Customers – eight compared with the same period of the previous year. The groups involving 70 interviewees with different socio- increase in Customer satisfaction is essentially linked to the -demographic and banking characteristics – with the objective factors “Employees’ competence and efficacy” and “waiting of determining which satisfaction factors are taken into time”. The service quality factor in respect of which BPI account in the appraisal of the bank’s service quality. presents the highest level of satisfaction is “personal attendance”, managing at the same time to surpass the level At a later stage, an extensive survey of 22 000 Banco BPI of overall satisfaction – IQS. Customers was carried out – on average, 45 Customers per branch out of a representative sample of the branch, as regards their socio-demographic and banking characteristics. The Service quality index Increase of service survey’s goal was to evaluate the Bank and each one of its 4th Quarter 2003 quality index branches taking into consideration the different satisfaction (vs. 4th Quarter 2002) factors identified, as well as the weight of each one of these 875 IQS 2.5% factors on the global assessment each Customer makes of the Employee’s service provided. 867 competence 2.8% and efficiency Personal Basic satisfaction factors 898 attendance 1.0% Four basic satisfaction factors relating to the branches were Waiting 858 time 4.6% ascertained and the relevant degree of importance calculated Telephone (weighting on the IQS): “Employees’ competence and efficacy”, 866 attendance 1.9% “personal attendance”, “waiting time until being attended” and 700800 900 1000 0% 2% 4% 6% “efficacy of the branch’s telephone attendance”. Chart 20
58 Banco BPI | Annual Report 2003 CORPORATE BANKING, INSTITUTIONAL BANKING AND PROJECT FINANCE
OVERVIEW At the end 2003, Corporate Banking, Institutional Banking Total resources amounting to EUR 1 644 million registered a and Project Finance were responsible for a loan and slight decrease of 2.4% when compared with December guarantee portfolio of EUR 9 920 million. This figure 2002. represented a decrease of 3.2% relative to 2002.
Principal business indicators Amounts expressed in millions of euro Corporate Banking continued to implement the same policy 2002 2003 ∆ M.€ ∆% 1 of portfolio risk diversification and selectivity in the granting Loans and guarantees Wholesale banking 3 757.6 2 836.1 (921.5) (24.5%) of loans, already adopted to a large degree in 2002. The Large companies 2 421.8 2 421.2 (0.6) 0.0% control standards for the biggest exposures became more Medium-sized 2 750.5 2 804.5 +54.0 2.0% stringent, which entailed the far-reaching re-balancing of the Project finance 637.4 983.9 +346.5 54.4% loan and guarantee portfolio. The weight of the Wholesale Institutional Banking 683.8 874.6 +190.8 27.9% Banking segment relative to total remunerated assets fell Loans and guarantees 10 251.1 9 920.3 (330.8) (3.2%) from 37% to 28% in 2003, while the weight of the large Resources 1 684.1 1 644.0 (40.1) (2.4%) 1) Includes loans to Customers, loans to credit institutions, debt securities Table 25 and medium-sized companies’ segment on the portfolio rose and guarantees. from 50% to 53%.
Loans and guarantees Customer resources Excluding the Wholesale Banking segment, the remaining Bi.€ Bi.€ 12 2.4 loans and guarantees portfolio of Corporate Banking, 10.9 10.4 10.3 Institutional Banking and Project Finance recorded a 9% 9.9 increase in 2003. 9 1.8 1.7 1.6 1.7 1.6 7.4
The Project Finance and Institutional Banking segments 6 1.2 1.2 registered steep increases of 54% and 28%, respectively, in 2003. It is worth noting that during 2003 the Project 3 Finance Division began to undertake the management of the 0.6 branch’s syndicated loans in Spain, previously carried out by other corporate divisions. This change resulted in a transfer 0 0 99 00 01 02 03 99 00 01 02 03 of operations in the amount of EUR 108 million. Guarantees Loan portfolio Also noteworthy was the growth of around 10% in Chart 21 Chart 22 commissions and other net income, driven by the increase in services provided to Customers.
Report | Commercial Banking 59 Physical network The Corporate Banking, Institutional Banking and Project Physical Virtual Finance areas manage in an integrated manner the Bank’s Centres no. relationship with some 14 thousand BPI corporate and Wholesale1 4 BPI Net Empresas* 2 www.bpinetempresas.pt institutional Customers, as well as the respective product Large companies 6 Medium-sized Banco Electrónico BPI* range. Following Wholesale Banking’s autonomy in the second companies3 38 half of 2002, Customers are now separated into five segments Project Finance 1 *Subscribers: 44% of Customers 4 according to their respective business volumes – Wholesale Institutionals 5 Banking, Large and Medium-sized Companies –, and according to their specific business mission – Project Finance and Azores Institutional Banking. The overriding objective of this distribution was to better tailor the Group’s products and Madeira services to each segment’s characteristics and requirements. Porto Corporate Banking and Institutional Banking have their own dedicated commercial networks – corporate centres and institutional centres – which ensure proximity, concentration and efficiency in the service rendered to Customers. The Project Finance area is dedicated to the organisation, mounting and participation in Project Finance operations, public-private partnerships, as well as in other structured financing deals.
Virtual channels Lisbon At the end of the first six months of 2003, BPI launched BPI Net Empresas, the corporate Internet banking service targeted at large, medium and small companies and institutional Clients. This service offers a comprehensive range of banking operations, including foreign operations and salary payments, as well as the immediate access to up-to-date information about the company
(integrated position, balances and movements) and the possibility 1) 70 biggest business groups. of downloading files for subsequent use with efficiency, speed, 2) Turnover above EUR 25 million. 3) Turnover between EUR 1.25 million and EUR 25 million. security and flexibility, thereby affording the opportunity for better 4) Local authorities, autonomous regions, social security system, universities, public utility associations and other non-profit entities. treasury management.
BPI Net Empresas is experiencing a strong adherence on the part of Corporate Banking Customers, having attained a penetration rate of 31% amongst active Customers which should continue to climb during 2004. This now constitutes the principal electronic means for Corporate Banking Customers to interact with BPI.
Figure 5
60 Banco BPI | Annual Report 2003 WHOLESALE BANKING, LARGE AND MEDIUM-SIZED COMPANIES
Credit Risks Division modernisation) based on the number of projects with the 2003 witnessed the consolidation of the process of Management Unit’s eligibility endorsement (with a market concentrating the management of risk at the Credit Risks share of 23%), and second place in terms of the total Division – large and medium-sized companies –, which amount of the projects in which it participated. permitted a better control of portfolio risks and a more efficient management of the process aimed at the recovery Banco BPI has contributed to the dynamism of mutual of non-performing loans. guarantee activity, assuming a leading position in the system’s global portfolio with a share of more than 50%. Public incentive systems The Bank is also leader at regional level, in both the amount In line with the previous programmes offering public grants contracted and in performing credit, in operations realised by to companies, BPI assumed in 2003 a leading position in its the three mutual-guarantee companies – Lisgarante, involvement in SIME (an incentive scheme for business Norgarante and Garval.
PROTOCOLS AND CREDIT LINES Protocol with the Instituto de Financiamento e Apoio ao Turismo Protocol with mutual guarantee companies BPI adhered to the joint initiative launched by the regional BPI signed a collaboration protocol with three new mutual- tourism boards and the IFT – Instituto de Financiamento e -guarantee companies – Norgarante, Lisgarante and Garval –, Apoio ao Turismo – with a view to disseminating the new which give guarantees in respect of loans contracted by regime governing banking protocols for this sector. The companies from the banking community. This protocol allows initiative included a cycle of information workshops promoted each mutual-guarantee company to furnish guarantees up to an by the tourism regions of Braga, Beja, Aveiro, Mirandela, amount of five million euros per annum in relation to credit Guarda, Santarém and Tomar. At the Beja, Aveiro and operations conceded by BPI. Mirandela sessions, BPI was given the opportunity to talk about the principal instruments that the Bank has to offer Support for the reconstruction of the areas affected by the fires to support companies in the tourism sector. BPI concluded an accord with the mutual-guarantee companies – Norgarante, Lisgarante and Garval – for the provision of European Investment Bank Credit Line guarantees relating to the operations eligible under the credit BPI signed an accord with the European Investment Bank for line opened to assist companies in the reconstruction of their the opening of a new credit line in the amount of one hundred activities and assets destroyed by last summer’s devastating million euro. fires.
Report | Commercial Banking 61 PROJECT FINANCE
Project Finance business experienced a substantial increase the organisation and mounting of public-private partnerships. (54%) in financing operations (loans and guarantees) which at 31 December 2003 reached a figure of EUR 984 million. The trend in Project Finance activity mirrors the role played During the year 2003, the Project Finance Division took over by BPI in supporting investment projects in certain strategic responsibility for managing the syndicated loans of the sectors, namely, motorways, electricity generation, Spanish branch previously overseen by other corporate transmission and distribution, rail transportation and divisions. This change resulted in the transfer of operations telecommunications. involving an amount of EUR 108 million.
Of the operations carried out in 2003, the following warrant Of special note was the increase in consultancy commissions special mention: from the sourcing of structured financing deals and from
MAIN PROJECT FINANCE OPERATIONS Public-private partnerships and in public administration
Ministry of Health: as global coordinator in the launching of ELWA (United Kingdom): public-private partnership project in the project for the new hospital in Loures. the urban, solid-waste treatment sector.
Ministry for Internal Administration: financial consultant in the launch of the Integrated System of Security and Structuring and mounting of financial restructurings / financial Emergency Networks of Portugal (Sistema Integrado das solutions in the public business sector
Redes de Segurança e Emergência de Portugal – SIRESP). Transgás: monitoring and updating the concession’s
Regional Government of the Azores: global coordinator of the economic-financial model.
motorway concession for the island of São Miguel. Águas de Portugal: support in the financial structuring of the
Mafra municipality: structuring, mounting and launch of the multi-municipality systems, including the negotiations with Mafratlântico project, (the first case of a municipal roadway the European Investment Bank.
financed by means of project finance). REFER: financial consultancy services in the definition of a
Aveiro Port Administration: financial consultancy mandate for contract-programme to be entered into with the State.
the definition of the operating model for the new North and Casa da Música / Porto 2001: restructuring of the medium / solid grain terminals. long-term financing.
EMPORDEF and OGMA: strategic and financial restructuring International area and preparation and development of a privatisation model for
ENA – Empresa Nacional de Autopistas (Spain): acquisition OGMA. of the State’s holding by Sacyr Vallehermoso.
AES Cartagena (Spain): combined-cycle power station Structuring, mounting and financing of project finance promoted by the American utility AES. operations
Biskaia Energia: combined-cycle power station promoted by Auto-Estradas do Atlântico: shareholder restructuring.
the Irish utility ESB. Serra da Cabreira wind farm (Eolenerg / SIIF Energies).
Inalta (Spain): acquisition of a high-voltage network. Euro 2004: projects for the construction / remodelling of
Eurolink (Ireland): motorway concession adjudicated to the stadiums (Euroantas and Boavista Futebol Clube). Spanish firm CINTRA.
62 Banco BPI | Annual Report 2003 INSTITUTIONAL BANKING Institutional Banking’s portfolio of loans, guarantees and The following were amongst the chief operations concluded other similar products totalled EUR 875 million at the close in 2003 following adjudications in open tenders: of 2003, representing growth of 28% relative to 2002.
Long-term loans contracted by the Leiria Municipal Council This performance is tangible evidence in particular of the for the purpose of financing the new Dr. Magalhães Pessoal Bank’s drive to find a suitable response to local authorities’ Municipal Stadium, in which BPI acted as leader and co- long-term financing requirements, now subject to stringent -financier in a partnership (in distinct operations) with two budgetary control. In accordance with the policy of international banks specially geared to the granting of local controlling public spending currently in force, local loans within the European Union; administrations are now subjected to a limit of zero overall growth in net borrowing. A real-estate leaseback operation concluded with the Aveiro Municipal Council for an amount of EUR 25 million to Excluded from this limit on local authorities’ indebtedness raise the resources needed to finance the construction of are operations to finance municipal works associated with the new stadium; the staging of the Euro 2004 soccer tournament, in which the Bank has contributed actively to the design and Long-term credit operations for investment projects entered realisation of the principal long-term financing deals. into with the Municipal Councils of Macedo de Cavaleiros, Amongst these, it was involved in the operations for the Guimarães, Vila do Conde, Sintra (social housing schemes), Braga, Guimarães, Oporto, Aveiro, Leiria and Faro municipal Vila Franca de Xira and Seixal. councils / companies. Institutional Banking’s participation (whenever necessary in In parallel, the Bank reinforced significantly its capacity to strict liaison with the Bank’s specialised divisions) was also offer specialised products and services, capable of ensuring particularly important in the procurement and effective the normal execution of local authorities’ and municipal execution of financial consultancy mandates involving certain companies’ day-to-day financial activity, thereby contributing municipal initiatives or those under their aegis. In this to the rational management of their respective resources and regard, a noteworthy assignment concluded recently was the placements. work relating to the revision of the Lisbon Municipal Council’s international rating. Lending activity in the climate of stiff competition which has been a feature since 1998 was also influenced by the need to attract whenever possible international sources of finance capable of providing the best financial conditions to the administration and to the local and regional services.
Report | Commercial Banking 63 OFFICE FOR ANGOLA
Reflecting the importance that BPI attributes to its presence in To identify financial instruments of national or international Angola, the Office for Angola was created within the ambit of origin which can be used directly or indirectly in the support the Corporate Banking area. It acts as a professional nucleus of economic activity in Angola; geared to supporting Portuguese companies seeking to develop
business operations in that country. The Office’s principal To gather information about the policies adopted and the objectives are: services offered by other entities with the object of responding to the problems confronting the different
To provide a consistent, specialised and swift response to the operators doing business in the Angolan market, as well as needs of Portuguese companies in matters relating to the considering the possibility of adjusting the policies currently Angolan market; pursued by BPI / BFA vis-à-vis that market;
To offer clarification and to become involved in the support to disseminate the BPI Group’s activity in its relations with for mounting operations or in making available services; the Angolan market, highlighting its potential and publicising the products and services marketed by Banco BPI and Banco
To detect business opportunities and assess the risks involved de Fomento de Angola. in the contacts to be established with companies or other parties promoting initiatives;
To identify the objectives, projects and needs of the various entities operating in the Angolan market (State, other public bodies, public and private-sector companies) with a view to proposing suitable services and solutions;
64 Banco BPI | Annual Report 2003 INTERNATIONAL ACTIVITY
BANCO DE FOMENTO ANGOLA
At the end of 2003, Banco de Fomento Angola’s (BFA) Principal indicators of Banco de Fomento Angola Amounts expressed in millions of euro shareholders’ funds totalled EUR 56.4 million and assets 2002 2003 ∆% Share1 Position1 EUR 646 million, equivalent to 4.6% and 2.5% respectively Assets (net) 557.4 646.4 16% - - of the Group’s indicators. Customer loans (net) 82.8 131.4 59% 21.2% #3 Customer deposits 401.8 486.7 21% 26.7% #2 The portfolio of Customer resources taken recorded growth of Contribution to the Group’s consolidated net profit 15.92 20.6 29% - - 21% in 2003 to reach EUR 486.7 million, while the loan Employees 286 441 54% - - portfolio grew by 59% to EUR 131.4 million. When Branches 17 27 59% - #2 expressed in US dollars (the local reference currency) the 1) Sectorial data relating to November 2003. Table 26 2) Includes net profit for the first half of 2002 when activity was carried out same portfolios evidenced even more expressive growth rates: by Banco BPI’s branch. 34% and 90% respectively. At the end of 2003 BFA had market shares of 27% in resources and 21% in loans. The Turning to the Angolan economy, 2003 was characterised by value of overseas operations was USD 2 785 million in the adoption of a series of policies oriented towards ensuring 2003, which corresponds to an increase of 35% over the macroeconomic activity: deceleration in inflation and the previous year. It is also worth noting the increase in the Angolan currency’s depreciation vis-à-vis the reference Customer base, more than 50% higher, numbering 134 currency (American dollar). thousand at year’s end. Tight liquidity control permitted keeping inflationary During 2003, BFA continued to expand its network pressures under control, with the increase in prices throughout the country, having opened 3 new branches in decelerating from 106% in 2002 to 77% in 2003. The Luanda and 7 in the provinces. The network now comprises Angolan Kuanza’s (AKZ) accumulated depreciation against 27 branches, thereby making it the country’s second largest the US dollar in 2003 was 34.8% and 61.8% against the banking network at the end of 2003 in terms of the number Euro. These figures confirm the deceleration in the AKZ loss of branches. of value relative to 2002 (83.6% and 117% respectively). As regards institutional measures, these included the The year under review was also marked by the inauguration launching of the Monetary and Currency Package in in July of the head office building, which represented an February, and the subsequent adjustments, as well as the investment of some USD 20 million. creation of new products and financial assets (treasury bills and bonds).
Report | Commercial Banking 65 History of the operation in Angola
The BPI Group’s presence in Angola dates back to June 1990 BFE’s acquisition by the BPI Group in August 1996 marks the with the opening of a representative office of the former Banco start of the Group’s strong banking expansion in Angola and de Fomento e Exterior (BFE). The status of this presence was the consequent increased importance in the sector, as borne reinforced in July 1993 with the opening of the BFE branch, out by a number of key indicators: number of Employees, which commenced its activity as a universal commercial Customers or branches, the value of loans, deposits or assets. branch with a capital allocation equivalent to USD 4 million.
Branch network Staff complement Loans to Customers Customer deposits
No.º No. M.€ M.€ 28 27 480 140 500 487 441 131
402 21 360 105 375 353 17 16 286 83 249 14 240 228 70 250 12 54 10 171 9 145 159 130 7 120 35 125 105 5 90 25 97 61 3 53 13 12 7 7 0 0 0 0 9697 98 99 00 01 02 03 9697 98 99 00 01 02 03 9697 98 99 00 01 02 03 9697 98 99 00 01 02 03
Chart 23 Chart 24 Chart 25 Chart 26
In July 2002, BFA (100% owned by BPI) became an On the technological front, it is worth mentioning the fact that independent entity subject to Angolan law following the the entire commercial network in this vast country is online. transformation of Banco BPI’s branch, with a capital equivalent Communications with the provincial branches is done via VSAT to USD 30 million. In July 2003, its new head office in with integrated data and voice, and with the Luanda branches Luanda was inaugurated, constituting the pinnacle of the BFA by means of a mixture of fibre optics and wireless systems. brand’s affirmation on the local market and a key landmark in BFA, which has an internal email service and intranet, the Bank’s expansion plan for the commercial network with the launched in January 2004 its institutional site. It is an open- concentration of the central services under one single roof. -access site providing information about the products and services offered to companies and individuals, as well as a Qualitative aspects of BFA’s activity reserved-access site for registered Customers wishing to carry Insofar as the staff complement is concerned, it is worth out homebanking operations. noting that of the presence headcount of 441 Employees (only seven of whom are not Angolans), 67% are attached to the In the sphere of electronic banking, BFA has a considerable commercial network, 32% are university graduates or students weight when it comes to the ATM network (35%) and the and 50% took part in training courses in 2003 devoted to number of debit cards issued (65%). Customer attendance and general banking operations.
66 Banco BPI | Annual Report 2003 Management policy has given priority to the investment in With its present size, national coverage and operating Angolan human resources, the ongoing reinvestment in Angola capability, BFA is especially well placed to support the of BFA’s profits, technology transfer and the regular monitoring development and consolidation of the favourable outlook of audit and inspection work or management results. stemming from the country’s most probable evolution.
Outlook Over the last three years, the Angolan economy has witnessed Net total assets a greater propensity for banking services, the increased M.€ 700 transformation of deposits into loans, greater diversification of 646 the product range, the extension of maturity periods relating to 557 available financial instruments and the reduced weight of the 525 504 informal market.
368 The challenges posed by Angola’s reconstruction – which 350 generate a number of small and medium-sized projects linked 286 244 to light industry and agricultural and livestock farming, in 204 tandem with the relaunching of important national 175 108 infrastructure projects –, the youthful population and the abundance of material resources allow one to adopt an optimistic medium-term view of Angola’s prospects. 0 9697 98 99 00 01 02 03
Chart 27 However, the dividends of peace and the results of oil prospecting – crude oil extraction is expected to increase from some 903 thousand barrels a day to in 2002 to 2 million a day by the end of the decade– will have to be prudently weighed with the recognition of the risks associated with emerging markets.
Report | Commercial Banking 67 BANCO DE FOMENTO MOZAMBIQUE AND BCI FOMENTO
Banco de Fomento Mozambique (BFM) began operating in Principal indicators of Banco de Fomento Mozambique1 and BCI Fomento Amounts expressed in millions of euro Mozambique in March 1993 with the opening in Maputo of BFM BCI Fomento a branch and an agency of Banco de Fomento e Exterior 2002 Nov. 03 Dec. 03
(BFE). With the acquisition of BFE in 1996, the BPI Group Assets 102.8 89.7 274.1 reinforced its presence on the Mozambican market which Customer loans (net) 42.4 34.1 112.9 had hitherto been limited to the Investment Banking area Customer deposits 77.1 67.8 191.2 (consultancy), becoming involved through the BFE branch Contribution ton the Group’s consolidated net profit2 2.3 (1.3) (0.5) in Commercial Banking. No. of Employees 121 137 450 Branches 7 7 31
1) The November 2003 figures refer to the balances recorded Table 27 in BFM’s accounts on the date of the merger with BCI. 2) For December 2003, the contribution referred to here only takes CREATION OF BCI FOMENTO into account the monthly variation of the BPI Group’s 30% shareholding. The transformation on 30 September 1998 of the branch into a Mozambican-law bank gave concrete expression to In November 2003, immediately before the merger with BCI the BPI Group’s strategic decision to strengthen its and with a network of seven branches and 137 Employees, involvement in Mozambique and create the conditions so BFM registered Customer deposits of EUR 68 million and a that in 2003 another major advance could be made in loan portfolio (net) of EUR 34 million, while assets totalled consolidating BPI’s presence in that country: the merging EUR 90 million. by incorporation of Banco de Fomento, SARL, (Mozambique) with Banco Comercial e de Investimentos, SARL, (BCI) through the complete transfer to BCI of Of the activity carried out in 2003, a highlight was the BFM’s assets and liabilities. The latter was then legally launching of the «cash passport» card which allows dissolved at the end of November (deed signed on Customers to draw cash from ATM’s around the world. 4 December 2003).
It should also be pointed out that for the second consecutive As a result of this operation, the BPI Group now owns a year, Banco de Fomento Mozambique received the Bank of 30% holding in Banco Comercial e de Investimentos, SARL, which adopted the brand BCI Fomento. This the Year in Mozambique prize awarded by The Banker institution now has a network of 31 branches and a magazine. The Bank was also distinguished with a gold market share of some 20%, making it the second largest medal for excellence in business practice attributed by the banking institution in the Mozambican financial system. Foundation for Excellence in Business Practice, whose head The balance sheet value of the BPI Group’s 30% interest office is in Geneva. in BCI Fomento at 1 December 2003 was EUR 7.8 million, having recoded a figure for goodwill on the merger of EUR 2.4 million.
68 Banco BPI | Annual Report 2003 Insurance
In the insurance area BPI has a strategic partnership with The positive results obtained are mirrored in activity and the sector’s world leader – the German group Allianz. This income levels, and in the number of policies contracted in association has been cemented through BPI’s 35% stake in 2003: Allianz Portugal and the distribution agreement under which insurance cover if marketed via the Bank’s commercial The value of commissions rose by 22%, to EUR 12.9 network. million;
BPI Customers thus have at their disposal an extensive range Life-assurance and general insurance premiums totalled of insurance products which cover both general insurance – respectively EUR 29.8 million and EUR 28 million. The motor car, household all risks, fire, alterations and growth rates seen in these premiums compare very installations, public liability and theft – and life assurance – favourably with the sector averages, exceeding the non- death or disability, personal accidents, health, -endowment life assurance premiums by 9 p.p. and by unemployment, hospitalisation and dental treatment. 12 p.p. in the non-life (general) insurance segment;
the trend in the number of insurance policies has also
INCREASE IN THE LEVEL OF GLOBAL SATISFACTION registered a positive performance, with the number of According to the results of a survey covering active life assurance policies at the end of 2003 exceeding bancassurance Customer satisfaction carried out by the 341 thousand and the number of non-life policies topping renowned multinational market survey firm – Deloitte – 168 thousand. the level of global satisfaction of BPI Customers who are insured with Allianz attained a value of 82% in 2003 Commissions (74% in 2002). In similar vein, Allianz obtained very Intermediation of insurance products
positive results in the individualised analysis of each one M.€ of the attributes considered – «Level of information 16 provided», «Speed in the resolution of claims», 12.9 «Accessibility in contact», etc. – while 74.4% of those 12 Customers with claims were satisfied with the manner in 10.6 which these were resolved.
BPI Customer Global Satisfaction Index 8 6.0
2003 82% 4 3.4 2.0 2002 74%
0 2001 69% 99 00 01 02 03
0% 25% 50% 75% 100% Chart 29
Chart 28
Report | Insurance 69 Asset management
OVERVIEW The volume of assets managed by BPI rose by 14.1% in According to surveys conducted by independent and 2003 to EUR 8 576 million at 31 December 2003. This reputable entities, BPI Pensões achieved first place amongst trend is indeed particularly positive when one considers that national pension-fund management companies in terms the the adverse perception of asset management continued in annual median return earned, with respective indicators of 2003, in particular, with respect to those products most 13.2% and 9.3%, depending on whether these returns are exposed to the instability of the equities markets. Investors weighted or not by managed assets. therefore maintained their preference for more conservative investments, such as life assurance, money-market funds or Breakdown of assets under Breakdown of assets under management management variable-rate funds. At 31 December 2003
Bi.€ With an excellent performance in terms of the yields 10.0 17% obtained, BPI’s portfolio of unit trust funds grew by 14.6% 8.6 14% 7.6 7.5 7.5 23% thanks to the net attraction of funds totalling EUR 358.3 7.5 7.2 3% million, giving BPI Fundos a market share of 17.5% at the end of 2003. 5.0 43% BPI Vida contracted new business of EUR 573.8 million, achieving second place in the life-capitalisation assurance 2.5 Unit trust (mutual) funds market with a share of 18%, and so advancing from 11th to Pension funds 4th position in the ranking of new insurance business Life assurance 0 Private Banking contracted taking the insurance market as a whole (life and 99 00 01 02 03 Institutional Clients non-life). Chart 30 Chart 31
Assets under management Amounts expressed in million of euro 1999 2000 2001 2002 2003 ∆% 02 / 03
Unit trust (mutual) funds 3 776 3 787 3 748 3 505 4 018 14.6% Pension funds 1 795 1 893 1 984 1 980 2 099 6.0% Life assurance 994 1 046 963 1 170 1 574 34.5% Private Banking 1 417 1 546 1 382 1 264 1 319 4.3% Institutional Clients 345 338 316 238 257 8.0%
Assets under management1 7 249 7 639 7 545 7 513 8 576 14.1% 1) Adjusted for duplication of balances. Table 28
70 Banco BPI | Annual Report 2003 UNIT TRUST (MUTUAL) FUNDS
Despite the positive direction of the stock markets, investors Breakdown of unit trust funds Breakdown of unit trust funds under management under management kept their investments in controlled-risk products (liquidity At 31 December 2003 and variable rate). BPI’s portfolio of unit trust (mutual) funds Bi.€ climbed 14.6% to reach EUR 4 018 million at the end of 4.5 4.0 2003. 3.8 3.8 3.7 31% 14% 3.5
5% This increase is explained by the net attraction of EUR 3.0 358.3 million, concentrated in more conservative products, namely, in variable-rate bond and liquidity funds and PPR/E 50% plans. 1.5
Taking into consideration only those funds domiciled in Bond and money market Portugal, BPI Fundos presented a market share of 17.5% at Tax efficiency (PPR/E and PPA) 0 Diversification the end of 2003, in other words, it occupied fourth place in 99 00 01 02 03 Capital growth (equities) the ranking of Portuguese management companies. Chart 32 Chart 33
Trend in the volume of BPI unit trust funds Amounts expressed in millions of euro 1999 2000 2001 2002 2003 ∆ % 02 / 03
Bond and money market 1 253 1 126 1 487 1 631 1 980 21.4% Capital growth (equities) 504 528 334 192 219 14.1% Tax efficiency (PPR/E and PPA)1 1 089 1 125 1 163 1 142 1 250 9.5% Diversification 893 964 764 541 569 5.2%
Total 3 740 3 743 3 748 3 505 4 018 14.6% Funds of funds 36 43 – – – –
1) Retirement Savings Plans and Equity Savings Plans. Table 29
Of BPI’s total unit trust funds, 10% are placed with the form part of the portfolios of Banco BPI’s individual Investment Bank’s Private Banking Clients, whilst 87% Customers.
Distribution of BPI’s unit trust funds Amounts expressed in millions of euro 2000 % 2001 % 2002 % 2003 %
Banco BPI individual Customers 2 955 78% 2 968 79% 2 955 84% 3 492 87% Private Banking 635 17% 580 15% 454 13% 414 10% Other 197 5% 200 6% 96 3% 112 3%
Total 3 787 100% 3 748 100% 3 505 100% 4 018 100%
Table 30
Report | Asset management 71 Returns BPI funds earned high yields in both absolute and relative These results are the corollary of the management team’s terms when compared with market indices or with the figures permanent concentration on the optimisation of yields. The presented by funds of the same class: team selects investments on a global scale and controls risk levels so that they are in harmony with each class of asset.
BPI Euro Taxa Fixa earned 4.51% in 2003 (already in The dedicated attention to the study of market patterns and 2002 it had been the best fund on the Portuguese market), to innovation is underpinned by the overriding priority in the retaining the lead in its class (fixed-rate euro bonds) and management of BPI’s assets – the preservation of capital. outperforming the EFFAS Euro Gov>1 year, index which represents European public debt;
BPI Universal, a fund which invests in international funds, achieved a return of 21.83%, a percentage well above that earned by funds of the same class in Portugal;
BPI OARAR, a high-yield bond fund, posted a yield of 24.16%, percentage which outperformed the indices for the international corporate bonds and emerging markets;
BPI Global, a balanced fund which represents the central model of BPI Fundos’ discretionary management, achieved a return of 8.05%;
BPI’s PPR/E managed returns of 8.43% for the Retirement Investment fund (which invests in equities) in 2003, and 4.66% for the Secure Retirement, a fund with a more conservative investment profile.
72 Banco BPI | Annual Report 2003 LIFE CAPITALISATION ASSURANCE New business written by BPI Vida in 2003 amounted to EUR Capitalisation life assurance 573.8 million, which corresponds to growth of 171.8% when New business per year compared with 2002. This growth outstripped the market by M.€ a wide margin of 19.1%. BPI Vida therefore secured second 600 574 place in 2003 in the sale of unit-linked insurance and attained a market share of 18%. 450
Capitalisation life assurance business written Amounts expressed in millions of euro 300 1999 2000 2001 2002 2003 212 BPI Taxas Garantidas (guaranteed rates) 73.0 41.4 40.7 34.8 22.7 150 127 BPI Novo Aforro Familiar 101 (new family savings) 21.7 8.5 65.3 130.4 476.7 56 Other 6.7 5.9 20.71 46.6 74.4 0 Total 101.4 55.8 126.7 211.9 573.8 99 00 01 02 03 1) Does not include the reinvestments in capitalisation insurance. Table 31 Chart 34
In 2003, BPI Vida secured fourth place in the ranking of new insurance contracted taking into account the whole of the insurance market (life and non-life), which contrasts with the 11th place recorded in 2002.
This result is due above all to the success in securing a new segment of Clients whose average age is situated around 55 years with an inclination for capital-guarantee products and a higher yield than those available on deposits. The historical rates – 4% per annum – of the Novo Aforro Familiar contributed greatly to the product’s success. The return for Customers in the past year was 4.34%.
BPI Vida’s expressive growth in 2003 (171.8%), on the heels of equally impressive growth rates in 2002 (67%) and 2001 (127%), led to the realisation of two successive capital increases in 2003 (in July and December), which raised the share capital from EUR 17.8 million to EUR 50 million.
Report | Asset management 73 PENSION FUNDS At 31 December 2003, BPI Pensões managed 30 pension According to the results disclosed by Mercer Investment funds, representing a total volume of financial assets of EUR Consulting of a survey which embraced 85% of the market, 2 099 million. This figure is 6% more than the amount BPI Pensões’ median return in 2003 was situated at 9.3%, under management at the end of the previous year. against the market’s 7.8%. According to the results ascertained by Watson Wyatt International, BPI Pensões During the year, some 60 defined-benefit pension plans were reached first position in a sample representing 81% of the the object of actuarial monitoring, pensions were processed Portuguese market, with a weighted return median of 13.2% and paid to 24 600 retirees and pensioners, while the in 2003, whilst the market median was situated at 7.0%. company undertook the maintenance of 7 900 accounts of participants in defined-contribution pension plans. Pension funds under management 2003 was marked by the following three principal events. Bi.€ No. 2.4 100 2.1 2.0 2.0 Drive to attract new Clients 1.9 1.8 BPI Pensões participated actively in tenders to submit 1.8 75 proposals for the management of pension funds. This participation resulted in the signing up of a meaningful 1.2 50 Assets under management number of new Clients, amongst whom the Sogrape Group, No. of Clients the Jerónimo Martins Group, the BNP Paribas Group and Note: In 2003, BPI Pensões obtained Docapesca. 0.6 25 7 new Clients, while 5 pension funds were extinguished and 3 were transferred.
Pension fund returns 0 0 99 00 01 02 03 The year 2003 was also marked by the excellent returns Chart 35 achieved by the pension funds under management, with BPI Pensões having attained (according to published surveys) first place in the ranking of national pension-fund management companies in terms of the annual return median.
74 Banco BPI | Annual Report 2003 Also in a long-term analysis, as gauged from the comparison Pension funds long term returns between the return median of the pension funds managed by % % 12 12 BPI Pensões and the market’s performance, BPI Pensões 10.9 continues to present very positive results. 9.9 9.9 9 9
Events 7.3 During the year under review, initiatives aimed at fostering 6 5.5 6 closer Customer relationships were pursued. A case in point 4.7 was the hosting of the conference in Sintra which counted with the presence of two distinguished foreign speakers, 3 3 2.8 2.2 2.3 1.5 experts in their fields of finance and portfolio management. 2.2 1.2 The conference was organised for pension-fund and other 0 0 Last Last Last Last Last Last institutional Clients of the BPI Group’s Asset Management 3 years 5 years 10 years 3 years 5 years 14 years
Area. Source: Watson Wyatt International Source: Mercer Investment Ltd. - Subsidiary in Portugal Consulting. (return weighted by the pension funds INSTITUTIONAL CLIENTS assets under management).
The total assets of institutional Clients under management BPI Pensões median Market median Chart 36 with discretionary or advisory mandates totalled EUR 257 million at the end of 2003, which represents an increase of 8% relative to the end of 2002. This variation was mainly due to the rally registered in the vast majority of stock markets and the signing-up of two new Clients. The results were in line with the returns obtained with the products distributed to the public.
Report | Asset management 75 Investment Banking
OVERVIEW Investment Banking activity contributed EUR 8.0 million to Impresa, Jerónimo Martins, Modelo-Continente and Portucel, the Group’s consolidated net profit in 2003, with the ROE amongst others. It is also worth highlighting the Bank’s being situated at 50.4%. involvement as consultant in a number of high-profile and key projects for the country, especially in the northern region – In the wake of the Group’s restructuring at the end of 2002, Metro do Porto (light railway system); API, promotion of 2003 was the first full year in which Investment Banking tourism in the Vale do Douro region; and Casa da Música. business was exclusively concentrated on Corporate Finance, Equities and Private Banking. The corporate reorganisation In the equities market, BPI led and underwrote one of the resulted in a substantial reduction in the Investment Bank’s three operations carried out on the primary market and, on the size, giving it a much leaner structure better geared to its secondary market, it continued to assert itself as an Iberian business needs. The commercial banking activities which had broker specialising in small and medium-cap companies. BPI hitherto been carried out by the Investment Bank, as well as increased its share to 9.7% on the Euronext Lisbon equities the Group’s financial management function, interest-rate secondary market, recorded a rise of 65% in the volume of trading and the chief investments, were transferred to Banco transactions brokered over the Internet and, on the futures BPI. Consequently, the average shareholders’ funds allocated market, it retained its first position in the ranking with a share to Investment Banking decreased from EUR 21.9 million in of 18% in trading of PSI-20 futures and second place in the 2002 to EUR 13.1 million in 2003. ranking with a share of 19% in equity futures.
The economic scenario in 2003 continued to be unfavourable BPI equities research was extended to cover 76 Iberian for Investment Banking business in Portugal, in line with the companies, while the quality of its work in 2003 continued trend observed over the last couple of years. to be acclaimed by national and international institutional The Portuguese economy registered a real decline in both GDP investors. and the main components of domestic demand, in particular, in gross fixed capital formation which fell by 10%. The In parallel, the Bank successfully concluded the double primary equity market in Portugal remained practically migration from the Lisbon market to the Euronext trading and inactive, at the same time as the trading volume on the clearing systems, increased the volume of transactions secondary market continued its downward trajectory (-12% brokered on foreign stock markets (notably, on the Spanish relative to 2002), despite the market’s 16% gain for the year market) and opened an office in Madrid. (as measured by the PSI 20 index). Private Banking activity was oriented towards broadening its In the light of the persistently adverse climate, BPI’s product range and boosting Customer loyalty. Its investment Investment Banking area delivered a very positive performance policy and advisory services focused on achieving capital and good results. growth for its Clients while at the same time preserving their capital. Assets under discretionary management and advisory In Corporate Finance activity, BPI continued to be involved in mandates totalled EUR 1 319 million at the end of 2003, important sectors of the economy, namely, which corresponds to annual growth of 4%. telecommunications, distribution and paper pulp, providing services to top-class companies – Portugal Telecom, Vodafone,
76 Banco BPI | Annual Report 2003 CORPORATE FINANCE
The Portuguese macroeconomic situation deteriorated further in attention focused on satisfying Customers’ requirements and 2003, as evidenced by the negative real variations in GDP and the quality of the solutions proposed – reflected in the growing in the principal components of domestic demand, notably, in loyalty of a diversified group of Clients – and in spite of the investment. These factors, in conjunction with the climate of forementioned overriding factors, permitted the Bank to geopolitical uncertainty, were the main reason behind a new provide, amongst others, the following services during 2003. retraction in the demand for corporate finance and a concomitant rise in competitive tensions. BPI’s permanent
MERGERS, ACQUISITIONS, RESTRUCTURINGS AND CONSULTANCY Impresa: organisation, mounting and underwriting of the Unicer: completion of the advisory assignment covering the capital increase operation, in the amount of approximately restructuring of Unicer Águas and giving support in the EUR 20 million. analysis of investment decisions.
Portugal Telecom: advising on the valuation of the Group’s Ibersol: advising on the restructuring of the group’s debt and media assets. on the analysis of investment decisions.
Vodafone Telecel: conclusion of the advisory work in the Amorim Lage: advising on the analysis of investment decisions. process of the consolidation of Portugal’s mobile Jerónimo Martins: advising on the analysis of investment telecommunications sector and giving support in the analysis decisions and in valuation processes. of investment decisions. Metro do Porto: advising on public-private partnerships Radiotelevisão Portuguesa: advising on the process of covering the extensions to the light metropolitan system and on negotiating broadcasting levies. the definition of the financial solutions for the relevant ACE: advising on the analysis of investment and financing interfaces and parking facilities. decisions. TAP – Air Portugal: completion of support given in the Gescartão: advising Gescartão in the second phase of its preparations for the reprivatisation of the company’s capital. privatisation, and participation in the operation’s placing API – Agência Portuguesa para o Investimento: advising in the syndicate. process involving the promotion of tourism in the Vale do Portucel: advising Portucel SGPS within the ambit of Portucel Douro region. S. A.’s privatisation: valuation and assistance in the analysis of Casa da Música: consultancy work covering the definition of a bids submitted under the tender. business model. Manuel Inácio & Filhos: advising on the acquisition of Quimiparque: advising in the valuation of real-estate assets. Sapropor. Vista Alegre Atlantis: advising on business reorganisation and Modelo Continente: advising on the valuation of the giving support in the analysis of internationalisation-related distribution assets owned by the group in Brazil, as support for investment projects. the internal transaction already carried out. CTT / Mailtec: advising on the concentration of assets deployed in finishing activity.
Report | Investment Banking 77 EQUITIES
2003 saw the end of one of the most negative periods for Secondary equities market the world’s equities markets, not only from the standpoint of BPI generated commissions of EUR 3.9 million on the the magnitude of the losses sustained, but also in terms of secondary market (a positive year-on-year variation of 5%). its duration. The cessation of the Iraq war marked the start This improvement reflects BPI’s higher share in the of the stock market recovery: investor confidence indicators Portuguese market (from 6.1% to 9.7%), as well as the improved and, most importantly, the American economy also increase in equity dealings on the foreign stock exchanges, emitted positive signals. Since the end of March the in particular, on the Spanish market. These factors European stock markets have posted gains of around 30%. counterbalanced the dual impact of the drop in dealing The Iberian markets were no exception, with the Spanish volume on the Portuguese market and the pressure on market recording a rise of 34%, while its Portuguese commissions. counterpart witnessed an advance of 32% in the same period. Despite the positive backdrop, trading volumes on The Lisbon market’s double migration to the Euronext’s the Portuguese market continued to languish at low levels, trading and clearing systems was successfully concluded in with the daily average of EUR 86 million being lower than November 2004. This migration led to BPI’s decision to opt the average turnovers of 2002 and 2001: EUR 98 million for a new dealing and back-office system which entailed a and EUR 139 million respectively. sizeable investment in financial and human resources.
At the BPI Group, 2003 was the first year in which equity BPI Online – BPI’s stockbroking arm operating via the dealing was conducted exclusively at the Investment Bank Internet –, recorded a 65% increase in the volume of following the incorporation of BPI Dealer in December 2002. brokered deals, which compares favourably with the 33% This process, in line with other rationalisation measures, was growth in the same volume on the Portuguese online- responsible for a decline of around 30% in the costs -stockbroking market. In 2003, BPI Online’s market share associated with this business area. was thus 7.0% in the online-stockbroking segment, compared with 5.6% in 2002. The tempo of this positive Primary equities market trend in market share accelerated in the closing months of The primary market continued to be dormant in Portugal, 2003, with BPI Online securing fourth place in the segment bearing in mind that the only privatisation operation realised rankings. In this fashion and with relatively moderate was that of Gescartão. Other privatisation operations which investments, BPI Online closed the gap on and even the market had been anticipating were postponed. Moreover, surpassed some of its main competitors. only two share capital increases were carried out in 2003: those of BCP and Impresa. BPI led and underwrote Impresa’s capital increase reserved for shareholders.
78 Banco BPI | Annual Report 2003 Research & Sales Trading Research coverage at the end of 2003 embraced 76 Iberian Trading activity (including arbitrage) made a positive companies, 43 of which form part of the PSI-20 or IBEX 35 contribution of EUR 3.7 million to 2003 results, compared indices. Amongst the companies covered, 49 are Spanish with the 2002 contribution of EUR 1.5 million. and 27 Portuguese. The chief additions to the list of companies covered since January 2003 were: Abengoa, On the futures market and in terms of activity on behalf of Acerinox, FCC, Indra, Novabase, Prisa, Recoletos, Sogecable Customers and dealing for its own account, BPI continued to and Tubacex. occupy the leading position in PSI-20-index futures (18% share and first position in the ranking) and in equity futures In 2003, BPI’s research continued to be honoured in the (19% share and second place in the ranking). BPI was also leading rankings relating to this activity. The quality of the undisputed leader amongst domestic operators in the research was held in high esteem by institutional investors, trading of index futures and options on the MEFF (Spanish both internationally (through the Institutional Investor) and Derivatives Exchange). in Portugal, by way of the award for the best research team in Portugal attributed jointly by Semanário Económico (a leading financial weekly) and Deloitte.
BPI’s research was also given good classifications at European level for the quality of its estimates and for the recommendations relating to Iberian companies.
BPI subscribed to the service of an external company which permanently monitors and evaluates the quality of recommendations, as well as the forecasting abilities of the respective research analysts. This measure is intended to stimulate the quality of service provided in the Equities area.
BPI continued to organise road shows for Iberian companies, namely for: Bankinter, Banco Popular, Banco BPI, Ebro Puleva, Enagás, Impresa, NH Hoteles, Novabase, Portugal Telecom, PT Multimedia and Sonaecom.
Report | Investment Banking 79 PRIVATE BANKING
In 2003 BPI’s Private Banking service concentrated on inflation-indexed structured products and by the investments providing investment solutions capable of increasing the managed on a discretionary basis by Private Banking. return on assets under the Bank discretionary management or effective advisory mandates. In this regard and always Created at the end of 2002 with the aim of making with the overriding goal of preserving Clients’ financial investments more tax efficient and asset management and assets, BPI adopted an investment and advisory policy that Customer loyalty more effective, the investments managed by favoured the exposure to interest-rate assets with attractive Private Banking at the end of 2003 represented the risk / return prospects. Throughout the year, and in particular principal component of the total volume of capitalisation in the latter half, there was a gradual increase in the insurance, as well as a significant part of the volume of exposure to equities, thereby benefiting from the resurgence assets under Private Banking’s discretionary management. of the stock markets. Business volume at 31 December 2003 amounted to EUR A primary feature was the significant increase in the 1 794 million, which represents an increase of 9% in resources allocated to value-added investment products, relation to the previous year. Of this total, some EUR 1 319 namely, unit trust (mutual) funds – its own and non-Group million refers to assets under discretionary management or funds –, savings plans, capitalisation (unit linked) insurance effective advisory mandates entrusted to BPI Private Banking and structured products. It is worth highlighting in this (increase of 4%), EUR 395 million was associated with regard the success of the “tailor-made” investment solutions stable investments under custody (up 25%) and EUR 80 – either in the form of capitalisation insurance or via the million represented loans advanced to Clients (14% more). recourse to bonds –, as well as the success recorded by
Principal Private Banking indicators Amounts expressed in millions of euro 1998 1999 2000 2001 2002 2003
Assets under management 1 340 1 413 1 546 1 382 1 264 1 319 Discretionary management 655 729 697 518 511 426 Advisory services 685 684 849 864 753 893 Stable investments under custody 338 452 334 373 316 395 Loans advanced – 58 82 71 70 80
Table 32 BPI (Suisse), S.A. Following its incorporation in July 2002, 2003 was BPI (Suisse) S.A.’s first full year as a business unit. The company offers a service to wealthy individual Clients. Activity in 2003 was centred on the dissemination of the service offered and the prospecting for new Clients.
80 Banco BPI | Annual Report 2003 Private Equity
At the end of 2003, the BPI Group’s Private Equity area Inter-Risco was a signatory to the protocol of the Fundo de managed (via Inter-Risco) a group of assets which totalled Sindicação de Capital de Risco (Syndicated Venture Capital some EUR 107 million (at balance sheet values), including Fund) created in July 2003, whereby it is envisaged that the its own portfolio and third party funds. fund will permit leveraging the investment capability of Inter- -Risco and the funds managed by it in its various facets. In this regard, it is worth highlighting the Fundo Caravela – a venture capital fund promoted by the BPI Group – whose Business activity remained relatively weak in both Portugal activity started up in January 2003 with an initial allocation and Europe in the Mergers and Acquisitions field – 2003 of EUR 20 million. Amongst the array of investors in the recorded the lowest figure of the last four years in terms of Fundo Caravela is the EIF – European Investment Fund. This the number of transactions and the value transacted –, as was the first operation of this type realised by the EIF in well as regards the volumes of capital investment (which fell Portugal. The fund’s capital is currently in the process of by around 21% in Portugal). Despite this, six shareholdings being increased to EUR 30 million. were sold – three of which within the ambit of takeover bids (Portuguese acronym – OPA) –, in the amount of EUR 23 During the course of 2003, 70 prospective investment million (at balance sheet values). projects were received and analysed representing investment intentions in the order of EUR 100 million – which amount Market corresponds to around 55% of the previous year’s figures. The venture-capital sector in Portugal continued to display In line with recent year trends, there was an increase in the the same characteristics as those seen in recent years: relative importance of expansion projects at the expense of scarcity of attractive investment opportunities, reduced proposed start-ups. The average amount applied for was prospects of investment portfolio rotation due to the above- situated in the vicinity of EUR 1.5 million. -mentioned lacklustre business environment, and a generally subdued level of activity in relation to the European context. In the light of prevailing market conditions, stringent analysis and project selection criteria were maintained, with Available indicators relating to Private Equity activity in the result that the rejection rate for projects in this past year Portugal in 2003 point to a decrease of 10% in the volume exceeded 70%. of investment, which amounted to some EUR 100 Millions. Moreover, the exit options were practically non-existent, as a During 2003 investments were made amounting to around consequence of which disinvestments suffered a drop of eight million euro, essentially channelled into the 52%. This was especially felt in the disinvestment by trade reinforcement of existing participating interests. In addition, sale, which was down 76% on the preceding year. the BPI Group subscribed a total of ten million euro for the capital of the Fundo Caravela, which in view of its recent launch, has a high investment capability.
Report | Private Equity 81 Despite the substantial inflow of capital into the sector Investments originating fundamentally from the public sector (in the form The current investment portfolio presents a healthy balance of the POE grants), there were no noteworthy operations on of the various growth components, both sectorial and in the Portuguese market, contrary to what occurred in our terms of the investment’s nature. neighbouring country: Spain. At international level, some dynamism was observed in large-scale operations, in Private Equity investment Private Equity investment portfolio portfolio particular, public-to-private operations. Breakdown by sector of activity Breakdown by investment's nature 16% 1% 14% 21% 13% Investment strategy 3% 9% 5% BPI’s private equity activity in 2003 consisted essentially of monitoring the current investment portfolio and in the detection and analysis of investment opportunities. Inter- 48% 70% -Risco started to carry out private equity activity by participating in venture-capital funds managed by it, much Final consumer Buyout IT products and services Expansion in line with the model adopted in most European markets. Holdings Start-up Other manufacturers Retailing Financial services This new business model signifies bolstering revenues and Other sectors rendering them more recurrent, leveraging the experience in Chart 37 Chart 38 private-equity asset management through the attraction of outside capital on which an annual management commission is charged.
In this domain, Inter-Risco will limit direct investment activity to eventual operations covering monitoring and capital reinforcement in existing companies, directing its policy of new investments solely to the Fundo Caravela.
Following the Fundo Caravela’s entry into activity, an active policy of searching for investment opportunities was adopted, leading to the undertaking of various initiatives with selected targets. This fund’s investment strategy geared towards national SME’s will give preference to projects which are headed by professional management teams possessing a strategic business vision, offer high growth potential and are equipped with adequate management information systems.
82 Banco BPI | Annual Report 2003 Principal Private Equity holdings Amounts expressed in millions of euro Net % held Activity Company investment
Vista Alegre Atlantis1 19.71% 13.6 Manufacture and sale of table and decorative ware (in porcelain, glazed earthenware, crystal and glass). Cofina 8.58% 12.2 Media, steel, cellulose, ceramics and glass. Ibersol2 11.83% 6.9 Fast food outlets (Pizza Hut, Goody’s, KFC, O’Kilo, Pasta Café, Frangão…). Ensitel 10.78% 1.9 Retailer of telecommunications equipment. ParaRede 12.21% 8.2 Information technology services and products. Arco Bodegas Unidas 2.14% 4.1 Wine production and sales. Fernando & Irmãos (Aveleda) 15.56% 3.2 Wine production and sales.
Ricon 17.02% 3.0 Manufacture and specialist retailer of menswear (Gant and Decenio stores). Caravela Gest 20.0% 1.2 Food retailer (Häagen Dazs). Tecmic 24.45% 1.4 Microelectronics. ChipIdea 4.76% 1.2 Provision of services to the semiconductor / chip design industry. Multitema3 30.23% 1.1 Printing and production of multimedia content. WhatEverNet 12.58% 1.3 Information technology products and services. TVTEL 25.0% 0.5 Cable television. Brasopi 15.03% 0.6 Speciality menswear retailer (Boxer Shorts by Throttleman shops). Caderno Verde 23.86% 0.1 Publishing group and provision of communication services and environmental consulting. Other holdings 10.0
Total Private Equity 70.6
1) Corresponds to the direct shareholdings of Banco BPI (12.72%) and Inter-Risco (5.11%) – which is 83.64% owned by the BPI Group –, as well as to the direct Table 33 shareholding of the Fundo FRIE (1.89%), of which Inter-Risco is the management company, which is not reflected in the Group’s consolidated investment portfolio. 2) Corresponds to the direct shareholding of Banco BPI (6.33%) and the indirect shareholding (5.50%) owned through the IES. 3) Corresponds to the direct shareholding of Inter-Risco (12.7%) – which is 83.64% owned by the BPI Group –, as well as to the direct shareholding of the Fundo FRIE (17.53%), of which Inter-Risco is the management company, which is not reflected in the Group’s consolidated investment portfolio.
Report | Private Equity 83 Financial review
CONSOLIDATED RESULTS
Overview BPI’s consolidated net profit in 2003 was EUR 163.8 The more moderate expansion of 0.7% in on-balance sheet million, which represents an improvement of 17.0% when Customer resources – deposits and structured debt products compared with the EUR 140.1 million earned in 2002. – was complemented by debt-security issues placed with Earnings per share grew by 12.1% to 21.6 euro cents, while institutions, thereby permitting an increase in the medium the return on shareholders’ equity was 13.9%. and long-term component of funding. On the other hand and taking advantage of some dynamism displayed by the equity The contribution from Commercial Banking’s domestic markets, commercial action focused on the sale of unit trust operations rose by 2.3% to EUR 133.2 million in 2003. The (mutual) funds and unit-linked insurance products. This Investment Banking area contributed EUR 8.0 million to strategy resulted in an increase of 17.9% in these off- consolidated earnings (contribution of EUR -0.5 million in -balance sheet resources. 2002), whilst the contribution made by the Private Equity and other equity investments area climbed from a negative Net profit Operating income from banking figure of EUR 7.5 million in 2002 to a positive EUR 2.7 M.€ M.€ 200 800 780.3 774.9 million in 2003. International activity contributed with EUR 751.0 709.4 19.9 million to consolidated earnings, 11.7% more than in 163.8 152.4 591.5 2002. 150 140.1 600 133.3 124.8
The Group’s activity in 2003 evolved in a more adverse 100 400 environment, marked by the economy’s negative growth on the heels of two years of strong deceleration. This background has influenced the evolution of revenues over 50 200 the past three years and was responsible for an increase in credit (lending) risk in the economy. 0 0 99 00 01 02 03 99 00 01 02 03
In 2003, the loan portfolio grew by 7.1%, a figure that Chart 39 Chart 40 reflects the differentiated approach adopted by BPI to the various Customer segments. Priority continued to be given to the granting of mortgage lending, which posted growth of 16.5% accompanied by market share gains, while the remainder of the loan portfolio contracted 0.5%, thus reflecting a lending policy subordinated to capital return levels commensurate with the attendant risk.
84 Banco BPI | Annual Report 2003 In tandem with the trend in revenue, which has posted an In general terms, the international agencies consider BPI’s average growth of 3% per year since 2000 (+3.2% in 2003), performance positive, in particular, by the maintenance of BPI has intensified since the end of 2001 the programme earnings and asset quality levels. Accordingly, they aimed at operating rationalisation, improved efficiency and maintained their rating classifications attributed to BPI higher productivity until 2004, as a result of which throughout the economic cycle, while in 2003 one of the administrative overheads, depreciation and amortisation in international agencies upgraded its outlook for the Bank to 2003 were 2.4% less than the corresponding 2001 figure. “positive”. These measures involve the rejuvenation and rationalisation of human resources, the proactive management and Administrative overheads, Efficiency ratio and modernisation of the branch network, the simplification and depreciation and amortisation cost-to-income ratio M.€ % automation of operations-related processes, and the 600 90 intensified use of virtual channels. 505.1 492.8 476.7 490.8 79.6 450 423.4 80 It was therefore possible to improve the efficiency ratio1 from 71.9% in 2000 to 66.7% in 2003. 71.9
300 70 68.3 67.1 66.7 Simultaneously with growth and appropriate profitability, BPI 65.0 managed to safeguard adequate levels of financial strength 60.7 150 60 58.1 58.7 indicators in this cycle. At the end of 2003, the principal 57.5 indicators were: 0 50 99 00 01 02 03 99 00 01 02 03 the own funds requirements ratio, calculated according to Efficiency ratio1 the Bank of Portugal’s rules, stood at 9.9% and the Tier I Cost-to-income2 capital ratio at 6.7% (total ratio of 11.1% and Tier I 1) Administrative overheads, capital of 6.8% in accordance with the BIS); depreciation and amortisation as % of operating income from banking, excluding profits from financial operations. the investment portfolio registered a positive balance 2) Administrative overheads as % of between unrealised capital gains and losses (net of operating income from banking. provisions) of EUR 68.4 million; Chart 41 Chart 42
the ratio of loans in arrears for more than 90 days was 1.2% (1.3% in 2002), while the level of current provisioning cover was situated at 148%;
the pension funds’ net assets were adequate to ensure full funding cover (101.4%) of pension obligations recognised in the balance sheet.
1) Relationship between administrative overheads plus depreciation and amortisation, and operating income from banking, excluding profits from financial operations.
Report | Financial review 85 INCOME STATEMENT Consolidated operating income from banking climbed by 3.2% written off) as a percentage of the loan portfolio, declined from to EUR 774.9 million in 2003. Of particular note was the 0.63% in 2002 to 0.31%, a level that is close to the average 6.3% increase in commissions and other net income, while for the last three years. net interest income fell by 2.7%. Despite the higher cost of risk in 2003, the improved Personnel costs decreased by 0.4%, reflecting the execution efficiency meant that profit from ordinary activities increased of the rationalisation and rejuvenation programme for by 4.5% to EUR 200.8 million. Employees deployed in domestic activity, a process which also entails the execution of early-retirement accords (483 early Net extraordinary items decreased from a negative amount of retirements realised in 2003). Administrative overheads, EUR 5.3 million in 2002 to a negative figure of EUR 18.9 depreciation and amortisation registered a modest increase million, which essentially reflects the cost of early-retirement of 0.4%, which is lower than the progression in revenues, accords concluded in 2003. thereby enabling BPI to maintain the improved trajectory plotted by the efficiency ratio1, which declined from 67.1% On the other side, the decrease in the effective average in 2002 to 66.7% in 2003. income tax rate4 from 24% in 2002 to 13% in 2003, coupled with the higher contribution from the insurance subsidiaries Provisioning net of reversals increased by 19.4%, the chief (consolidated using the equity method), contributed to the explanation being the increased amounts set aside to cover 17% increase in consolidated net profit. non-performing loans2. The amounts provided for specific loan risk as a percentage of the performing loan portfolio, rose from After-tax cash flow generated was EUR 292.2 million, 0.38% in 2002 to 0.49% in 2003. It should be noted, corresponding to an increase of 13.1%. however, that the increase in loans in arrears (adjusted for write-offs3 and after deducting recoveries of loans in arrears
Net profit in 2003
M.€ 790.5 Consolidated net profit 800 Equity-accounted results of subsidiaries Corporate income tax 163.8 626.6 Net extraordinary items Minority shareholders’ interests 600 Provisions
400 Operating income from banking
Administrative overheads, 200 depreciation and amortisation
0 Income Net profit Costs and taxes
Chart 43
1) Relationship between administrative overheads plus depreciation and amortisation, and operating income from banking, excluding profits from financial operations. 2) Provisioning cover for loans in arrears and doubtful loans is realised in a progressive manner, in conformity with minimum cover coefficients laid down by the Bank of Portugal (Notice 8 / 2003) which take into consideration the age of the default situations, the type of loan and the nature of the guarantees. 3) The write-offs correspond to the amount of the non-performing loans fully provided for which were written off assets during the year. 4) Measured by the relationship between the provision for taxation and profit before taxation.
86 Banco BPI | Annual Report 2003 Consolidated income statement Amounts expressed in millions of euro Domestic Activity International Activity BPI Group (consolidated)
2002 2003 ∆% 2002 2003 ∆% 2002 2003 ∆%
Net interest income (narrow meaning) 440.1 437.3 (0.7%) 37.1 30.5 (17.6%) 477.2 467.8 (2.0%) Income from securities (variable yield) 10.4 6.8 (35.0%) - 10.4 6.8 (35.0%) Net interest income 450.5 444.0 (1.4%) 37.1 30.5 (17.6%) 487.6 474.5 (2.7%) Commissions and other similar income (net) 213.2 228.4 7.1% 16.0 15.2 (4.7%) 229.2 243.6 6.3% Recovery of loans in arrears written-off 14.7 20.5 39.7% - 0.1 - 14.7 20.6 40.5% Profits from financial operations (net) 23.8 24.0 0.8% (4.2) 12.2 389.2% 19.5 36.2 85.1%
Operating income from banking 702.2 716.9 2.1% 48.8 58.1 19.0% 751.0 774.9 3.2% Personnel costs 277.3 275.3 (0.7%) 8.3 9.3 11.1% 285.7 284.6 (0.4%) Other administrative costs 147.4 152.3 3.4% 7.6 8.9 17.4% 155.0 161.3 4.0% Depreciation and amortisation 48.1 44.0 (8.5%) 2.1 3.0 42.2% 50.2 47.0 (6.4%)
Administrative overheads, depreciation and amortisation 472.8 471.6 (0.2%) 18.1 21.2 17.4% 490.8 492.8 0.4% Net operating income before provisions 229.4 245.2 6.9% 30.7 36.8 19.9% 260.2 282.1 8.4% Provisions (net) 63.6 73.7 15.8% 4.5 7.6 70.3% 68.1 81.3 19.4%
Net operating income 165.8 171.5 3.5% 26.3 29.2 11.3% 192.1 200.8 4.5% Net extraordinary items (9.2) (19.0) (105.6%) 3.9 0.1 (96.5%) (5.3) (18.9) (254.4%)
Profit before taxation 156.5 152.5 (2.6%) 30.2 29.4 (2.7%) 186.7 181.9 (2.6%) Corporate income tax 32.7 13.5 (58.9%) 12.0 10.2 (15.4%) 44.7 23.6 (47.2%)
Profit after taxation 123.8 139.1 12.3% 18.2 19.2 5.6% 142.0 158.3 11.5% Equity-accounted results of subsidiaries 8.2 14.8 80.4% (0.3) 0.7 321.4% 7.9 15.5 97.2% Minority shareholders’ share of profit 9.8 10.0 1.8% - - - 9.8 10.0 1.8%
Net profit 122.2 143.9 17.7% 17.9 19.9 11.7% 140.1 163.8 17.0% After-tax cash flow 233.9 261.6 11.8% 24.4 30.6 25.0% 258.4 292.2 13.1%
Table 34
BPI GROUP ACTIVITY BY REGION Domestic activity comprises the Commercial Banking activity Fomento, SARL (Mozambique) into Banco Comercial e de conducted in Portugal and the provision of banking services to Investimentos, SARL, which after the merger adopted the non-residents, namely, amongst emigrant communities, and commercial brand BCI Fomento. As a result of this operation, those of the Madrid branch, as well as the activities relating to the BPI Group now has a 30% stake in BCI Fomento, whose Investment Banking, Private Equity and other investments. accounts have been consolidated using the equity method in December 2003. Until close towards the end of the year, international activity consisted of the activity conducted by Banco de Fomento At 31 December 2003, shareholders’ equity allocated to Angola and Banco de Fomento Mozambique, including also the commercial banking overseas (shareholders’ equity of Banco de appropriation of the results attributable to the 17% Fomento Angola and the balance sheet value of the 30% shareholding in Banc Post of Rumania. November 2003 saw shareholding in BCI Fomento in Mozambique) amounted to the conclusion of the sale of the 17% stake in Banco Post, EUR 63.8 million, which corresponds to 5.2% of the Group’s while December saw the merger by incorporation of Banco shareholders’ equity.
Report | Financial review 87 Profitability by business areas In 2003, the average return on the Group’s consolidated account this adjustment, virtually all of the Group’s capital shareholders’ equity (ROE) was 13.9%. The ROE on is allocated to domestic Commercial Banking (94.1% of domestic Commercial Banking was situated at 12.3%, while average capital in 2003), 1.1% of the Group’s average Investment Banking generated a ROE of 50.4% by virtue of capital was allocated to Investment Banking, 3.7% to the the lower capital consumption. Private Equity and other participating interests’ area, and 1.1% to international Commercial Banking operations. It should be pointed out in the wake of the Group’s restructuring at the end of 2002, project finance and fixed- Contributions by business area to 2003 net profit
-rate trading activities were transferred to the commercial M.€ 19.9 163.8 180 bank, while the investment bank became solely responsible 8.0 2.7 133.2 for corporate finance, brokerage, equities trading and private banking. As a result, the average shareholders’ equity 120 allocated to investment banking declined from EUR 21.9 million in 2002 to EUR 13.1 million in 2003. 60
For purposes of calculating profitability, shareholders’ equity 0 allocated to each business area is adjusted. After taking into Domestic Investment Private Equity International Consolidated Commercial Banking and other Commercial net profit Banking investments Banking
Chart 44
ROE by business areas Amounts expressed in millions of euro Commercial Banking International BPI Group Commercial Commercial Investment Private Equity and other (consolidated) Banking Banking participating interests Banking 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003
Average risk weighted assets 15 885.2 16 414.6 359.5 193.2 617.3 647.8 167.4 186.7 17 029.4 17 442.4 Shareholders' equity 687.9 979.6 (207.4) 36.2 439.4 58.8 117.81 106.41 1 037.6 1 181.1 Adjustment for capital reallocation 280.0 131.9 229.3 (23.2) (401.7) (15.0) (107.6) (93.7) - -
Capital allocated (adjusted) 967.9 1 111.5 21.9 13.1 37.6 43.9 10.2 12.6 1 037.6 1 181.1 Net profit 130.2 133.2 (0.5) 8.0 (7.5) 2.7 17.9 19.9 140.1 163.8 Adjustment to profit due to capital reallocation 5.7 4.1 5.2 (1.4) (9.1) (1.1) (1.8) (1.6) - -
Net profit (adjusted) 135.9 137.2 4.7 6.6 (16.6) 1.6 16.1 18.4 140.1 163.8 ROE 14.0% 12.3% 21.5% 50.4% neg. 3.7% 157.7% 145.3% 13.5% 13.9% Note: In determining the capital allocated to each area, it is assumed that each one uses the exact same amount of capital as the Group’s average capital employed. Table 35 In this manner, the amount of capital allocated to each area is calculated by multiplying the weighted assets by the quotient between shareholders’ equity and the Group’s weighted assets. Whenever the shareholders’ equity of a business area is more (or less) than the allocated capital, it is assumed that there has been a redistribution of capital, whereby that area’s contribution is adjusted by the costs (revenue) resulting from the increase (decrease) in outside resources by virtue of the capital reallocation. The return generated by each area results from the quotient between the adjusted contribution and the capital allocated to the area. 1) Includes non-remunerated debt owed by Banco de Fomento Angola. Following the transformation of BPI’s former branch in Angola into a local-law bank, part of the branch’s net assets was converted into a loan from Banco BPI to the new bank. This loan is being repaid by way of a plan comprising 10 half-yearly instalments, the first of which has already been paid in December 2002.
88 Banco BPI | Annual Report 2003 Net interest income
Consolidated net interest income declined 2.7% relative to Net interest income Amounts expressed in millions of euro 2002, or EUR 13.1 million. Net interest income as a 2002 2003 ∆% percentage of average total assets was situated at 1.82%, Net interest income (narrowing meaning) Domestic activity 440.1 437.3 (0.7%) 0.13 percentage points lower than in 2002. International activity 37.1 30.5 (17.6%)
Narrow net interest income (consolidated) 477.2 467.8 (2.0%) Narrow net interest income derived from domestic activity [As % of average total assets] 1.91% 1.80% evidenced a slightly more favourable trend by declining Income from securities (dividends) 10.4 6.8 (35.0%) 0.7%, that is, EUR 2.89 million1. Net interest income (consolidated) 487.6 474.5 (2.7%) [As % of average total assets] 1.95% 1.82% Note: In international activity, the 17.6% drop in narrow net Average total assets (consolidated) 24 996.6 26 009.2 4.1% interest income (-EUR 6.54 million) reflected on the one Table 36 side the fall in interest rates on local currency placements Net interest income Net interest income in 2003 Breakdown by and, on the other, the reallocation of resources from local- geographical area
-currency placements to investments in strong currencies. M.€ The latter generated lower net interest income due to the 600 92.1% fact that they are remunerated at lower rates: however, they 495.6 487.6 474.5 442.8 generated currency gains as a result of the respective 450 currencies’ appreciation which are recorded as profits from 341.1 financial operations. 1.4% 300 6.4%
Dividends received amounted to EUR 6.8 million, Narrow net interest income corresponding to an absolute decrease of EUR 3.6 million. 150 from domestic activity Narrow net interest income In 2002, this caption included dividends of EUR 6.3 million from international activity received from a participating interest that was sold in the Income from securities 0 (dividends) first quarter of 2002. 99 00 01 02 03
Chart 45 Chart 46
1) The full consolidation of BPI Rent, for the first time in 2003, generated an increase of EUR 4.6 million in net interest income. If the impact of BPI Rent was excluded, the decrease in narrow net interest income from domestic activity was 1.7% (EUR -7.5 million).
Report | Financial review 89 Spreads and volume review
Consolidated narrow net interest income continued to be Quarterly average spread Interest-earning assets Annual average balances subjected to the pressure from narrowing spreads. The % Bi.€ spread between interest-earning assets and interest-bearing 6.0 24 23.0 21.9 liabilities decreased by 0.19 percentage points which, in 20.4 turn, had a negative impact on net interest income of EUR 4.5 18 16.9 39.0 million. The narrowing of spreads reflects primarily the 3.8 1 3.4 3.6 decrease in spreads on the resources side by 0.41 3.3 13.3 3.2 percentage points, which was greater than the increase of 3.0 2.7 12 0.21 percentage points in spreads on interest-earning 2.7 2.8 2.5 2.5 assets1. 2.2 2.0 1.5 6
The negative impact of the lower spreads was responsible for the decrease in narrow net interest income, bearing in mind 0.0 0 99 00 01 02 03 99 00 01 02 03 that within the context of moderate growth in activity, it was Between loans and deposits Interest-earning assets only partially compensated by the positive effect of the 5.2% Between interest-earning assets Loans to customers expansion in average remunerated assets. The impact of this and interest-bearing liabilities expansion on net interest income was EUR 26.8 million. Chart 47 Chart 48
Average interest rates on remunerated assets and liabilities Amounts expressed in millions of euro 2002 2003 ∆ 2002 / 2003 Average Average Average Average Average Average In average In average balance rate spread1 balance rate spread1 balances (M.€) spread (p.p.) Placements with credit institutions 3 491.8 3.1% (0.2%) 2 949.6 2.4% 0.0% -542.3 +0.25 Loans to Customers 15 984.5 5.3% 2.0% 16 794.4 4.5% 2.1% +809.9 +0.17 Bonds and other fixed-income securities 2 383.7 6.3% 3.0% 3 245.0 5.0% 2.7% +861.3 -0.28
Interest-earning assets 21 860.0 5.1% 1.7% 22 988.9 4.3% 1.9% +1 128.9 +0.21 Amounts owed to credit institutions 6 388.5 3.6% (0.3%) 6 944.7 2.8% (0.5%) +556.2 -0.19 Amounts owed to Customers 11 892.2 2.2% 1.1% 12 103.1 1.7% 0.7% +210.9 -0.48 Debt securities 3 446.9 3.1% 0.2% 3 726.7 2.6% (0.3%) +279.8 -0.52 Subordinated debt 629.6 4.6% (1.3%) 662.5 3.6% (1.3%) +33.0 -0.01
Interest-bearing liabilities 22 357.2 2.8% 0.5% 23 437.0 2.2% 0.1% +1 079.8 -0.41 Average spread between remunerated assets and liabilities 2.3% 2.1% -0.19 Note: Average total assets 24 996.6 26 009.2 +1 012.6 Euribor 3M 3.3% 2.3%
1) In relation to the annual average of the 3-month Euribor: interest-earning assets = average yield - Euribor 3M Table 37 interest-bearing liabilities = Euribor 3M - average yield
1) Average spread in relation to the annual average of the 3-month Euribor.
90 Banco BPI | Annual Report 2003 The loan portfolio average balance grew by 5.1% (+EUR 810 At the end of 2003, the variable-rate mortgage-loan portfolio million) and the average bonds portfolio increased by 36.1% represented 99.5% of the total portfolio. Variable-rate loans (+EUR 861 million), which resulted principally from the are indexed directly to market rates, with an average investment in treasury bonds and foreign corporate bonds repricing gap of around six months. with high ratings.
These increases were partially financed by funds originating Loan portfolio quarterly average Loan portfolio interest rates spread from the EUR 542.3 million decrease in the average balance In relation to the 3-month Euribor Quarterly average interest rates of placements with credit institutions, with the result that % % the growth in average remunerated assets was situated at 4 10.0 5.1% (+EUR 1 129 million). 2.88 3 7.5 6.61 6.49 On the fund-taking side, the more moderate growth in 1.85 2.35 5.80 deposits (which represent the resources with the biggest 2.20 1.99 5.28 5.32 1.46 5.03 2 5.0 4.14 spread) meant that these could only finance 19% of the 3.45 3.73 3.43 expansion in assets. In order to complement funding, BPI 3.12 resorted to obtaining funds from other credit institutions 1 2.5 2.15 (which financed 49% of the increase in assets) and to issues of senior and subordinated debt securities (which funded 0 0.0 28% of asset growth). 99 00 0102 03 99 00 01 02 03
Loans to Customers Loans to Customers Spreads on loan portfolio 3-month Euribor The average spread on the loan portfolio (which represents Chart 49 Chart 50 73% of average interest-earning assets in 2003) increased by 0.17 percentage-point. This increase reflected on the one hand the rise in spreads, vis-à-vis the corresponding benchmarks, in the portfolios of the wholesale banking, large and medium-sized companies’ segments of 0.13 percentage points on average, and of 0.59 percentage points in consumer and personal loans. On the other hand, reflected the alteration in the loan portfolio’s structure as a result of the increased relative weight of the mortgage-loan portfolio (average spread of 1.36 p.p. in 2003) from 35% in 2002 to 40% in 2003, and the decrease in the relative weight of wholesale banking loans (average spread of 1.07 p.p. in 2003).
Report | Financial review 91 Spreads on resources
The contraction in spreads on the resources’ side was Resources quarterly average Resources interest rates spreads essentially associated with the backdrop of falling market In relation to the 3-month Euribor Quarterly average interest rates rates (the Euribor three-month average rate declined from % % 3.3% in 2002 to 2.3% in 2003). This descent was 4 6.0 particularly intense in the first half of 2003 and led to a 5.03 decrease on the spreads on deposits1. Also contributing to 3 4.5 3.45 the narrowing of spreads on resources, albeit to a lesser 3.73 3.43 degree, were the increase in the average balance on 2.10 3.12 3.65 2 3.0 resources taken from other credit institutions and the issue 1.58 2.86 3.09 1.00 2.93 2.90 2.15 of debt securities for the purpose of complementing the use 2.52 0.97 2.77 2.46 0.96 2.14 2.02 of deposits in funding the expansion of interest-earning 1 1.38 1.5 1.85 0.70 1.45 assets. 0.87 0.91 0.36 0.13 0 0.21 0.0 Interests income and costs 99 00 0102 03 99 00 01 02 03
Consolidated narrow net interest income decreased by Deposits and other remunerated Deposits and other remunerated EUR 9.4 million when compared with 2002, which resulted amounts owed to Customers amounts owed to Customers Interest-bearing liabilities Interest-bearing liabilities essentially from the conjugation of the positive effect of the 3-month Euribor expansion of EUR 26.8 million in remunerated assets and Chart 51 Chart 52 liabilities with the greater negative impact of EUR 39.0 million resulting from the decrease in the average spread between remunerated assets and resources.
In a scenario of falling market interest rates, the decrease in the average interest rate on placements led to a reduction of EUR 169.5 million in interest revenue, whilst the narrowing of the average spread on resources was responsible for a lower decrease in interest expenditure of EUR 130.5 million. In this manner, the net impact on net interest income was negative to the extent of EUR 39.0 million.
1) A portion of resources is less sensitive to the trend in market interest rates, namely, sight deposits which earn no or close to zero interest.
92 Banco BPI | Annual Report 2003 The following table presents the trend in revenue from interest earned on remunerated assets and the interest cost of remunerated liabilities.
Trend in interest income and expense Amounts expressed in millions of euro 2002 Balance effect Rate effect Residual effect Total change 2003
Income from interest-earning assets Placements with credit institutions 107.8 (16.7) (25.8) 4.0 (38.5) 69.3 Loans to Customers 846.6 42.9 (131.7) (6.7) (95.5) 751.1 Bonds and other fixed-income securities 149.6 54.0 (30.3) (11.0) 12.8 162.3 Correction for the structure effect1 - (23.2) 18.3 4.9 --
Income from interest-earning assets 1 104.0 57.0 (169.5) (8.8) (121.3) 982.7 Cost of interest-bearing liabilities Amounts owed to credit institutions 230.0 20.0 (51.4) (4.5) (35.9) 194.1 Remunerated Customer deposits and other liabilities 259.3 4.6 (60.6) (1.1) (57.1) 202.2 Debt securities 106.5 8.6 (16.1) (1.3) (8.8) 97.7 Subordinated debt 28.8 1.5 (6.2) (0.3) (5.0) 23.8 Correction for the structure effect1 - (4.6) 3.7 0.9 --
Cost of interest-bearing liabilities 624.5 30.2 (130.5) (6.3) (106.7) 517.9 Subtotal (income from assets – cost of liabilities) 479.4 26.8 (39.0) (2.4) (14.6) 464.8 Other income and costs2 (27.9) 9.5 (18.4) Net income from swaps and other off-balance sheet operations 25.7 (4.3) 21.4
Net interest income (narrow meaning) 477.2 (9.4) 467.8 Income from securities (variable yield) 10.4 (3.6) 6.8
Net interest income 487.6 (13.1) 474.5
1) Reconciliation line for the sum of the volume, price and residual effects of the components of remunerated assets and liabilities relative to the value of these effects Table 38 calculated for the aggregate of remunerated assets and liabilities, by virtue of the fact that the last-mentioned are also influenced by the change in the structure of placements and resources, the effect of which is not evidenced by the sum of the effects of their components. 2) Interest income on liquid and other assets, net of the contributions to the deposit guarantee fund and interest expense on other liabilities.
Net interest income evolution in 2003 Net interest income generation1 In 2003 M.€ 12.5% 600 +26.8 487.6 +2.7 474.5 7.4% -39.0 -3.6 450
300 80.1%
150 Credit intermediation Bond portfolio Hedging, treasury management, 0 trading and other Net interest Balance effectRate effect Residual Income from Net interest income effect and securities income in 2002 other (dividends) in 2003 1) Considering the average cost of interest-bearing liabilities.
Chart 53 Chart 54
Report | Financial review 93 Commissions
Net commissions and other similar income earned by the Commissions and other entire Group grew by 6.3% relative to 2002 as a result of similar income (net) M.€ the 7.1% increase in commissions derived from domestic 280 activity. 243.6 229.2 219.9 225.3 210 In domestic activity, commissions and other similar income 190.7 from Commercial Banking climbed 9.4%, that is, an increase of EUR 17.9 million1. Meriting special reference 140 were the higher commissions earned relative to 2002 from loans and guarantees (+18.3%), cards (+5.6%), deposits 70 and associated services (+10.8%), insurance broking (+22.1%) and the placing of non-financial products (+22.2%). 0 99 00 01 02 03
Investment Banking For their part, Investment Banking commissions registered International Commercial Banking Domestic Commercial Banking a drop of 12.2% (-EUR 2.7 million) in 2003 to EUR 19.8 Chart 55 million.
It is worth noting that commissions associated with unit trust (mutual) funds and unit-linked insurance2 – included in domestic Commercial Banking and Investment Banking contributions in the overall amount of EUR 45.6 million, despite registering a decrease of 5.0% (-EUR 2.4 million) relative to 2002 – evidenced a favourable quarter-by-quarter progression in 2003.
Turning to international Commercial Banking activity, commissions and other similar income totalled EUR 15.2 million, which corresponds to a decline of 4.7% (-EUR 0.8 million) when compared with 2002. In 2003, they included non-recurring costs of EUR 0.6 million relating to customs tariffs on the import of equipment to Banco de Fomento Angola’s new head office.
1) If commissions of EUR 1.5 million earned by BPI Rent in 2003 were excluded (the company was fully consolidated for the first time in 2003), the growth in commissions earned from domestic Commercial Banking was 8.6%. 2) Includes placing and depositary bank commissions and BPI Fundos asset management commissions, which were apportioned between the domestic Commercial Banking and Investment Banking areas in accordance with each area’s relative importance in the placement of products. In 2003, 88% of commissions were allocated to domestic Commercial Banking and the remaining 12% to Investment Banking.
94 Banco BPI | Annual Report 2003 Commissions and other similar income1 (net) Amounts expressed in millions of euro 2002 % 2003 % ∆%
Domestic activity Commissions associated with loans and guarantees 56.4 25% 66.7 27% 18.3% Income from cards 44.1 19% 46.5 19% 5.6% Deposits and related services 26.2 11% 29.0 12% 10.8% Unit trust funds and unit-linked insurance 38.2 17% 38.2 16% 0.1% Intermediation of insurance products 10.2 4% 12.5 5% 22.1% Related to credit for the acquisition of non-financial products 3.2 1% 4.0 2% 22.2% Banking services 8.9 4% 8.8 4% (1.5%) Securities-related services 3.3 1% 3.5 1% 6.3% Other 0.1 0% (0.7) (0%) -
Commercial Banking commissions 190.7 83% 208.6 86% 9.4% Unit trust funds 9.8 4% 7.4 3% (25.0%) Banking services 9.2 4% 6.3 3% (31.6%) Of which: Portfolio management and advisory services 2.8 1% 2.3 1% (17.7%) Consultancy and valuations 6.3 3% 4.0 2% (37.1%) Brokerage and other securities-related services 4.2 2% 5.2 2% 25.5% Other (0.6) (0%) 0.9 0% - Investment Banking commissions 22.6 10% 19.8 8% (12.2%)
Domestic activity commissions 213.2 93% 228.4 94% 7.1% International activity commissions 16.0 7% 15.2 6% (4.7%) Total 229.2 100% 243.6 100% 6.3%
1) Includes other net operating income, excluding non-performing loan recoveries and includes other taxes except corporate income tax. Table 39
Report | Financial review 95 Profits from financial operations
Profits from financial operations climbed from EUR 19.5 Profits from financial operations Amounts expressed in millions of euro million in 2002 (corresponding to 2.6% of operating income 2002 2003 ∆ M.€ from banking) to EUR 36.2 million in 2003 (4.7% of Domestic activity Interest rate instruments 21.4 15.2 -6.2 operating income from banking). Equities and equity futures 1.5 3.7 +2.2 Structured products 3.1 3.4 +0.3 Profits from financial operations relating to domestic activity Private Equity (4.7) 1.3 +6.0 totalled EUR 24.0 million, marginally higher than the EUR Currency gains 3.5 3.3 -0.2 23.8 million earned in 2002. The most significant Other (1.0) (3.0) -2.0 contributions were attributable to gains on interest rate Domestic activity 23.8 24.0 +0.2 International activity (4.2) 12.2 +16.4 instruments of EUR 15.2 million, principally associated with Total 19.5 36.2 +16.6 the Group’s financial management. Table 40
Trading activity, including arbitrage, involving equities and Profits from financial Profits from financial operations operations equity futures, which is predominantly domestic, generated Domestic and international activity a contribution of EUR 3.7 million. This figure represents a M.€ % M.€ positive evolution when compared with the EUR 1.5 million 80 20 60 49.9 recorded in 2002. 45.7 59.8 41.2 60 15 40 Profits from financial operations associated with international 46.7 23.8 24.0 activity, in the amount of EUR 12.2 million, were essentially 40.6 40 10 20 currency related and are linked to the Angolan operation. 36.2 12.2 9.9 These gains resulted primarily from the currency gains 5.5 19.5 arising from investments denominated in strong foreign 20 5 0 currencies, mostly expressed in dollars. In 2002, the -5.0 -4.2 contribution from international activity had been adversely 0 0 -20 affected to the extent of EUR 9.6 million stemming from the 99 00 01 02 03 99 00 01 02 03 currency depreciation of the net assets belonging to the Profits from financial operations Domestic activity former branch in Angola. (left-hand scale) International activity Profits from financial operations as % of operating income from banking (right-hand scale)
Chart 56 Chart 57
96 Banco BPI | Annual Report 2003 Administrative overheads, depreciation and amortisation Administrative overheads, depreciation and amortisation Administrative overheads, depreciation and amortisation Amounts expressed in millions of euro totalled EUR 492.8 million in 2003, which corresponds to 2002 2003 ∆% an increase of 0.4% relative to 2002, but nonetheless below Domestic activity than the rise in revenues. Consequently, the indicator Personnel costs 277.3 275.3 (0.7%) “administrative overheads, depreciation and amortisation as Outside supplies and services 147.4 152.3 3.4% Administrative overheads 424.7 427.6 0.7% a percentage of recurring income” (operating income from Depreciation and amortisation 48.1 44.0 (8.5%) banking excluding profits from financial operations) improved Administrative overheads, depreciation from 67.1% in 2002 to 66.7% in 2003. and amortisation in domestic activity 472.8 471.6 (0.2%) Administrative overheads, depreciation and amortisation in international activity 18.1 21.2 17.4% In domestic activity, administrative overheads, depreciation Administrative overheads, depreciation and amortisation decreased by 0.2% to EUR 471.6 million, and amortisation (consolidated) 490.8 492.8 0.4% Administrative overheads as % of which reflects the impact of the stringent execution of the operating income from banking 58.7% 57.5% operational rationalisation programme in progress in the Administrative overheads, depreciation and amortisation as % of operating period 2002-2004. This involves the reduction in the income from banking, excluding profits from financial operations 67.1% 66.7% number of Employees, the proactive management of the Table 41 branch network, the simplification and automation of operating processes, and the intensified use of the virtual Administrative overheads, depreciation and amortisation channels. M.€ 600
It should be mentioned that BPI Rent began to be fully 505.1 492.8 476.7 490.8 consolidated in 2003. If the impact of this change to the 450 423.4 consolidation perimeter on domestic activity is excluded, then personnel costs decreased by 1.8%, outside supplies 300 and services rose by 2.0% and administrative overheads, depreciation and amortisation fell by 1.3% relative to 2002.
150 For their part, administrative overheads, depreciation and Depreciation and amortisation Outside supplies and services amortisation relating to international activity increased by Personnel costs 0 17.4% to EUR 21.2 million, reflecting the reinforcement of 99 00 01 02 03 Chart 58 the operation’s structure in Angola (increases of +54% in the workforce, +60% in the number of branches and the inauguration of the new head office building).
Report | Financial review 97 Personnel costs Personnel costs fell by 0.4% in consolidated terms when In 2003, the staff complement employed in domestic compared with 2002. activity was reduced by 510 Employees (-7.3%), 487 of whom by reason of early-retirement accords (in 2002, 440 In domestic activity, personnel costs declined 0.7% (drop early-retirement agreements were concluded). of 1.8% if the impact of BPI Rent’s full consolidation is excluded), notwithstanding the 2003 salary-scale review The impact of early retirements realised in 2003 on the of 2.6% stemming from the ACTV (Collective Employment decrease in personnel costs is still not fully reflected in the Agreement for the Banking Sector), the effective impact of income statement owing to the fact that staff departures which on personnel costs was in the region of 4.4%. The occurred in average terms on September, with the result that continued implementation of the rejuvenation and these Employees ceased to contribute to personnel costs for rationalisation directed at Employees deployed in domestic only 1/4 of the year. activity resulted in a reduction in the average staff complement of 5.9%. Personnel costs in 2003
15.1% 21.8% In the meantime, the increase in the staff headcount at 4.3% Fixed costs Banco de Fomento in Angola explains the increase of EUR Variable costs Social charges 0.9 million in personnel costs relating to international Other activity (+11.1%). 58.8% Chart 59
Personnel costs Amounts expressed in millions of euro 2002 2003 ∆%
Domestic activity 277.3 275.3 (0.7%) International activity1 8.3 9.3 11.1%
Total 285.7 284.6 (0.4%)
1) Personnel costs of Banco de Fomento Angola and up until Table 42 November 2003 of Banco de Fomento Mozambique. Banco Fomento Mozambique was incorporated into Banco Comercial e de Investimentos (BCI Fomento) in December 2003, following which the BPI Group now owns a 30% stake in BCI Fomento, which is equity accounted in the group accounts.
98 Banco BPI | Annual Report 2003 BPI Group Employees Average no. of Employees No. of Employees at end of the year 2002 2003 ∆% 2002 2003 ∆%
Banco BPI in Portugal1 6 429 6 363 (1.0%) 6 540 6 004 (8.2%) Investment bank1 437 160 (63.3%) 200 146 (27.0%) Other subsidiaries in Portugal1 252 167 (33.6%) 71 157 121.1% Activity in Portugal 7 117 6690 (6.0%) 6 811 6 307 (7.4%) Overseas branches and representative offices 164 161 (2.1%) 162 156 (3.7%)
Domestic activity 7 282 6 851 (5.9%) 6 973 6 463 (7.3%) International activity2 370 480 29.7% 407 441 8.4% Employees of fully-consolidated companies 7 652 7 330 (4.2%) 7 380 6 904 (6.4%) Employees of equity-accounted subsidiaries3 154 40 (74.1%) 150 39 (74.0%)
Total Group Employees 7 805 7 370 (5.6%) 7 530 6 943 (7.8%) Temporary workers4 74 107 44.0% 46 82 78.3%
7 879 7 477 (5.1%) 7 576 7 025 (7.3%)
1) At the end of 2002, and following the Group’s reorganisation, Banco BPI’s staff complement increased by 385 Employees as a result of the merger Table 43 of certain subsidiaries with Banco BPI and the transfer of Employees from the investment bank. 2) Average number of Employees at Banco de Fomento Angola and Banco de Fomento Mozambique up till November 2003. The number of Employees at the end of 2003 refers only to Banco de Fomento Angola (at the end of 2002 Banco Fomento Angola’s staff headcount was 286). 3) The decrease in the number of Employees is due to the full consolidation of BPI Rent in 2003, in the wake of which the number of Employees is now included under “Other subsidiaries in Portugal”. 4) The cost of temporary work is reflected under the item Outside Supplies and Services.
Report | Financial review 99 Outside supplies and services
The costs of outside supplies and services were 4.0% higher first time in 2003) is excluded, the increase in outside than in 2002. In domestic activity the increase was 3.4%, supplies and services was just 2.0%. In international but if the impact of BPI Rent’s full consolidation (for the activity, these costs increased by 17.4%.
Outside supplies and services Amounts expressed in millions of euro 2002 % 2003 % ∆%
Domestic activity Water, power and fuel 5.9 4% 5.8 4% (2.8%) Forms and materials consumed 1.7 1% 0.9 1% (48.2%) Other third party supplies 1.2 1% 1.9 1% 52.4% Outside supplies 8.9 6% 8.5 5% (4.0%) Letting and rentals 24.1 16% 27.7 17% 14.9% [Of which, rentals] [19.3] [12%] [20.9] [13%] [8.4%] Communication and dispatch costs 19.0 12% 19.9 12% 4.3% Advertising and publishing 21.5 14% 20.8 13% (3.3%) [Of which, cost relating to the deferral of advertising campaign costs] [12.9] [8%] [9.8] [6%] [-24.2%] Professional retainers and fees 5.9 4% 5.0 3% (14.1%) Conservation and repairs 10.9 7% 11.3 7% 3.8% Specialised services1 39.0 25% 41.3 26% 6.0% Other third party services 18.1 12% 17.8 11% (1.8%) Third party services 138.5 89% 143.8 89% 3.8%
Domestic activity 147.4 95% 152.3 94% 3.4% International activity 7.6 5% 8.9 6% 17.4% Total 155.0 100% 161.3 100% 4.0%
1) The increase is explained by the execution of the outsourcing programme for certain activities (+EUR 1.3 millions) and by studies and consultations (+EUR 1.1 million). Table 44
It is worth underlining the more moderate increase of EUR BPI has been deferring the cost of investments in 1.3 million in outsourcing costs (+14.2%) when compared institutional and product advertising campaigns over three with 2002, when the increase vis-à-vis 2001 had been years on the grounds that the benefits flowing from this type EUR 4.4 million. The trend in outsourcing costs reflects the of expenditure extend over a number of financial years. In slower rhythm of outsourced activities given the high level 2003, the outlay on advertising campaigns with these already attained. characteristics amounted to EUR 11.5 million (EUR 4.0 million in 2002).
100 Banco BPI | Annual Report 2003 In accordance with this procedure, the charge in the 2003 Advertising campaigns income statement of EUR 9.8 million reflects EUR 2.5 M.€ 20 million relating to the partial recognition of advertising 17.3 spending in the year, and EUR 7.3 million relating to previous years’ expenditure. 15 14.1 13.0 12.9 11.5 The following table presents the expenditure on institutional 9.8 9.8 10 and product advertising campaigns, as well as the impact of 7.8 the deferral of the respective cost on the income statement. 5 At the end of 2003, the amount to be imputed to future 4.0 financial periods was EUR 11.2 million. 2.1 Total spending in the year Cost recognised in the year 0 99 00 01 02 03 Chart 60
Deferral of advertising campaign costs Amounts expressed in millions of euro Cost recognised in the year Amount not yet recognised Advertising campaigns Total cost 1999 2000 2001 2002 2003 31 Dec. 2003
1999 14.1 2.1 4.7 4.7 2.6 - - 2000 17.3 - 3.1 5.8 5.8 2.7 - 2001 9.8 - - 2.6 3.3 3.3 0.7 2002 4.0 - - - 1.2 1.3 1.5 2003 11.5 ----2.5 9.0
Total 56.7 2.1 7.8 13.0 12.9 9.8 11.2
Table 45
Report | Financial review 101 Depreciation and amortisation Consolidated depreciation and amortisation decreased by In international activity, depreciation and amortisation rose 6.4% to EUR 47.0 million in 2003 (EUR 3.2 million less by 42%, or EUR 0.9 million more relative to 2002, than in 2002). reflecting primarily the depreciation (for the first time) of Banco de Fomento’s new head office building in Angola In domestic activity, depreciation and amortisation fell by (with an estimated cost of USD 20 million) and the opening 8.5%, or EUR 4.1 million, reflecting the slowdown in capital of 10 new branches, also in Angola, which represented an expenditure after the sizable investments of recent years, 60% increase in the distribution network. notably in 1999 and 2000, with the 20% expansion in the traditional branch network, the launch and development of Depreciation and amortisation in 2003 virtual channels, the preparation of systems for the year 33% International activity 2000 and for the introduction of the euro. The biggest 6% Domestic activity decreases in depreciation and amortisation charges in 2003 Intangible assets Premises were recorded in intangible assets and IT equipment, bearing Computer hardware 23% 18% Other fixed assets in mind that as a consequence of the shorter depreciation 20% periods, the deceleration in capital expenditure is more Chart 61 rapidly reflected in the income statement.
Depreciation and amortisation of intangible and tangible fixed assets Amounts expressed in millions of euro Depreciation and amortisation in the year Net fixed assets 2002 2003 ∆% 31 Dec. 2003
Domestic activity Intangible assets 11.4 8.6 (24.3%) 10.0 Premises 9.2 9.4 1.4% 168.9 Computer hardware 13.1 10.8 (17.0%) 15.4 Other fixed assets 14.4 15.2 5.4% 70.4 Capital expenditure in progress 26.3 Tangible fixed assets 36.7 35.4 (3.6%) 281.0
Domestic activity 48.1 44.0 (8.5%) 291.0 International activity 2.1 3.0 42.2% 32.3 Total 50.2 47.0 (6.4%) 323.4 Table 46
102 Banco BPI | Annual Report 2003 Provisions
Amounts set aside for provisions (net of reversals) increased net operating income before provisions in domestic activity by 19.4% to EUR 81.3 million in 2003. In domestic from 28% to 30%, while in international activity it climbed activity, provisioning rose by EUR 10.0 million to EUR 73.7 by EUR 3.1 million to EUR 7.6 million, which corresponds million, which led to an increase in the ratio provisions / to 21% net operating income before provisions.
Provisions (income statement) Amounts expressed in millions of euro Domestic activity International activity BPI Group (consolidated)
2002 2003 ∆ M.€ 2002 2003 ∆ M.€ 2002 2003 ∆ M.€
Loan provisions Specific loan provisions 61.2 77.3 +16.1 (2.6) 2.8 +5.4 58.6 80.1 +21.5 General loan provisions 3.2 5.9 +2.7 4.4 3.9 -0.5 7.5 9.7 +2.2 Reversal of general provisions (used for increasing specific provisions for loans; Bank of Portugal Notice 8 / 2003) - (27.2) -27.2 - - - - (27.2) -27.2
Total provisions for Customer loans 64.4 56.0 -8.4 1.8 6.7 +4.9 66.1 62.7 -3.5 Provisions for unrealised losses on securities and participating interests 19.3 (6.9) -26.2 0.1 0.2 +0.1 19.5 (6.7) -26.1 Provisions for country risk (29.4) (0.8) +28.6 - - - (29.4) (0.8) +28.6 Other provisions 9.3 25.4 +16.1 2.6 0.7 -1.9 11.9 26.1 +14.2
Total 63.6 73.7 +10.0 4.5 7.6 +3.1 68.1 81.3 +13.2
Table 47
Report | Financial review 103 The Group’s consolidated financial statements reflect an It should be noted that, in 2002, was reversed an amount of amount of EUR 80.1 million (net of reversals) provided for EUR 27.8 million of provisions for country-risk, which were specific loan default situations, that is, EUR 21.5 million created to cover the shareholders' equity of Banco BPI’s more than in 2002. Of the amount provided, EUR 29.2 former branch in Luanda. This reversal is explained by the million refers to the provisioning of new loans in arrears and fact that, as part of the process involving the branch’s other doubtful debt situations occurring in the year, while transformation into a local-law bank, part of the former the remaining refers to the provisioning of arrear loans and branch’s shareholders equity was converted into a loan from doubtful debts with a maturity of more than 1 year. Banco BPI to the new bank. This loan, in the amount of EUR 60 million, is being repaid in 10 half-yearly instalments The loan portfolio’s expansion meant that a further EUR 9.7 and is secured by a euro-denominated deposit of the same million (EUR 7.5 million in 2002) was set aside (net of amount. reversals) for general provisions1.
On the other hand, the application of the new provisioning Loan provisions and annual net additions in loans in arrears As % of performing loan portfolio rules contained in Notice 8 / 2003 which, besides other % changes, laid down a reduction in the provisioning 0.8 0.71 coefficient for general credit risks on home mortgage loans 0.66 0.60 from 1% to 0.5%, generated a surplus of EUR 27.2 million 0.6 0.55 in accumulated general provisions in the balance sheet. This 0.43 0.491 0.37 surplus was fully utilised in 2003, through the reversal of 0.4 0.29 0.29 0.30 0.38 EUR 27.2 million of general provisions which was used to 0.32 0.2 increase specific loan provisions. 0.120.18 0.14 0.0 99 00 01 02 03 In 2003, the capital appreciation registered in the securities and participating interests portfolio resulted in a reversal of Total loan provisions (specific + general) Chart 62 General loan provisions provisions (net of provisions set aside), with impact on the Specific loan provisions Annual increase in loans in arrears2, adjusted by write-offs income statement, of EUR 6.7 million, while in the previous 1) In 2003, EUR 27.2 million was set aside for specific loan provisions (0.17% of the year were set aside EUR 19.5 million of provisions. performing loan portfolio) by using, through reversals in the income statement, the surplus general provisions resulting from the application of the new provisioning rules. Consequently, the increase in specific provisions had no impact on the Conversely, BPI set aside in 2003 an amount of EUR 17.5 income statement. 2) Loans in arrears for more than 30 days. million for non-compulsory provisions for other risks and contingencies.
1) The growth in the loan portfolio leads to the obligation to create provisions for general credit risks corresponding to 0.5% of loans secured by a mortgage over fixed property or real-estate leasing operations (in both cases, when the property is to be used as the borrower’s residence), to 1.5% of consumer credit and unspecified personal loans, and to 1% of the remainder of loans granted. In this manner, the general credit provisions dictate that the largest provisioning effort is made in the phases of the most pronounced growth in lending.
104 Banco BPI | Annual Report 2003 Net extraordinary items Net extraordinary items decreased from a negative figure of Net extraordinary items also include in 2002 and 2003 a EUR 5.3 million in 2002 to a negative EUR 18.9 million cost of EUR 8.5 million relating to the contributions to the in 2003. pension funds in order to cover the additional obligations arising from the non-utilisation of the disability decreases in The chief contributing factors were: the actuarial calculation, in accordance with the Bank of Portugal’s new regulations issued in 2001 and which came
capital gains of EUR 20.4 million realised on the sale of into effect in 2002. participating interests and fixed assets in 2003, slightly
less than the EUR 21.0 million realised in 2002; Pension-related costs Amounts expressed in millions of euro 2002 2003
Incentives for early retirement 13.0 10.8 the increase in pension-related costs, from EUR 32.0 Amortisation of additional pension million in 2002 to EUR 36.6 million in 2003. obligations due to early retirements 10.4 17.3 [Of which, relating to those concluded in 2001 and 2002] [10.4] [10.3] Net extraordinary items Amounts expressed in millions of euro [Of which, relating to those concluded 2002 2003 in 2003] - [7.0]
Domestic activity Amortisation of the additional pension obligations due to non-utilisation of Capital gains on the sale of fixed assets1 21.0 20.4 disability decreases 8.5 8.5 Pension-related costs (32.0) (36.6) Other 0.2 (0.1) Other net extraordinary items 1.8 (2.8) Pension-related costs 32.0 36.6 Domestic activity (9.2) (19.0) Table 49 International activity 3.9 0.1 Total (5.3) (18.9) At the end of 2003, the following had still to be recognised 1) Includes in 2003, within the ambit of the sale of the shareholding Table 48 in Banc Post, a gain of EUR 4.7 million for the undertaking not to compete in the income statement: with Banc Post in the Rumanian banking business over the next 3 years.
EUR 142.1 million, which is being recognised as a cost The impact on 2003’s earnings of early-retirement costs was over a maximum period of 10 years, of which EUR 138.5 EUR 28.2 million, of which EUR 10.8 million refers to early- million refers to the additional obligations associated with -retirement incentives (487 early-retirement accords the early retirements effected in 2001, 2002 and 2003; concluded in 2003) and the remaining EUR 17.3 million corresponds to the annual write-down of the accrual of the EUR 85.5 million, relating to the additional obligations additional obligations arising from the early retirements arising from the non-utilisation in the actuarial calculation realised, of which EUR 10.3 million relates to those effected of the disability decreases. This amount is being funded in 2001 and 2002 and EUR 7.0 million to those effected and recognised in the financial statements up until 2021 in 2003. by means of a plan of uniform instalments.
Report | Financial review 105 Corporate income tax Minority shareholders’ interests The average rate of corporate income tax, as measured by Minority shareholders’ interests in net profit amounted to the relationship between the provision for taxation and profit EUR 10.0 million in 2003 (EUR 9.8 million in 2002), before tax, decreased from 24% in 2002 to 13% in 2003. corresponding mainly to the dividends of the preference The decline in the average tax rate reflects mainly the shares issued by BPI Capital Finance, which totalled EUR utilisation by Banco BPI of the tax-loss carried forward 9.5 million in 2003. following the Group’s reorganisation at the end of 2002. In August 2003, Banco BPI issued via its subsidiary Results of equity-accounted subsidiaries BPI Capital Finance Limited, EUR 250 million in preference Subsidiaries consolidated on the basis of the equity method shares with a floating interest rate equivalent to 3-month contributed EUR 15.5 million to consolidated earnings, Euribor (3M) plus 1.55%. In September 2003, BPI while in 2002 their contribution stood at EUR 7.9 million. exercised the “call” over the Series B preference shares (USD 100 million, interest rate of 3M Libor +2.65%) and This performance is chiefly the result of the higher in December 2003 the “call” over the Series A preference contribution made by the subsidiaries operating in the areas shares (USD 150 million, interest rate of 3M Libor +1.95%). of life-assurance capitalisation (BPI Vida) and non-life and life-risk assurance (Allianz Portugal), up from EUR 1.6 million in 2002 to EUR 8.6 million in 2003. This improvement essentially reflects the positive impact on insurers’ securities portfolios of the equity market’s more favourable performance.
Equity-accounted results of subsidiaries Amounts expressed in millions of euro 2002 2003
Domestic activity BPI Pensões 2.0 2.0 BPI Vida 2.4 4.0 Allianz Portugal (0.8) 4.6 Cosec 0.8 0.6 Viacer 3.4 3.6 BPI Rent 0.3 - Other 0.2 0.1
Domestic activity 8.2 14.8 International activity (0.3) 0.7 Total 7.9 15.5
Table 50
106 Banco BPI | Annual Report 2003 BALANCE SHEET Net total assets at 31 December 2003 amounted to EUR At the end of 2003, 97.5% of the Group’s consolidated 26 195.3 million, which corresponds to an increase of 2.0% assets were deployed in domestic activity and 2.5% in in relation to the end of 2002. international activity. The shareholders’ equity allocated to international activity (i.e. the shareholders’ equity of Banco The consolidated loan portfolio grew by 7.1% to EUR de Fomento Angola and the balance sheet value of the 30% 17 638.3 million. Mortgage loans with a growth rate of shareholding in BCI Fomento in Mozambique) amounted to 16.5% were the most dynamic component of the loan EUR 63.8 million, which corresponds to 5.2% of the Group’s portfolio, accounting for roughly 43% of the consolidated shareholders’ equity. loan portfolio at the end of 2003. Net total assets and disintermediation The 0.7% increase in resources taken from Customers and Bi.€ 35 carried in the balance sheet (deposits, structured products 30.5 29.1 29.6 and fixed-rate bonds placed with Customers) was 28 26.3 accompanied by the attraction of medium and long-term resources from institutional investors. This strategy meant 20.8 21 that it was possible to limit the recourse to the money market and hence maintain a financing profile adapted to 14 Disintermediation1 2 the maturity structure of assets. At the end of 2003, the Net total assets
1) Off-balance sheet customer transformation ratio of the more stable resources (Customer 7 resources. resources and medium and long-term issues) into loans was 2) Corrected for duplication of balances. 103.1%. For their part, off-balance sheet resources totalled 0 99 00 01 02 03 Chart 63 EUR 5 562.0 million, which corresponds to growth of 17.9% relative to the end of 2002.
Balance sheet structure
Assets (net) Liabilities and shareholders’ equity Liquid assets and loans to 13.1% Amounts owed to credit institutions 23.7% credit institutions 12.0% Bonds and equities Debt securities portfolio 16.4%
Loans to Customers 67.3% Amounts owed to Customers 47.2%
Investments, fixed Shareholders’ equity, assets and other minority interests, 12.8% subordinated debt 7.6% and other 31 Dec. 03 31 Dec. 03
Chart 64
Report | Financial review 107 Balance sheet (consolidated) Amounts expressed in millions of euro 2002 2003 ∆%
Assets (net) Liquid assets 854.2 1 035.0 21.2% Loans to credit institutions 3 168.2 2 401.4 (24.2%) Loans to Customers 16 472.6 17 638.3 7.1% Bonds portfolio 2 856.8 2 941.5 3.0% Equities portfolio 149.7 192.6 28.6% Investments 641.1 663.7 3.5% Fixed assets 306.6 323.4 5.5% Sundry assets 1 219.9 999.4 (18.1%)
Total assets 25 669.1 26 195.3 2.0% Liabilities and shareholders’ equity Amounts owed to credit institutions 6 627.3 6 196.3 (6.5%) Amounts owed to Customers1 12 330.9 12 355.6 0.2% Debt securities 3 541.4 4 298.5 21.4% Sundry liabilities 901.8 853.0 (5.4%) Provisions and fund for general banking risks 220.0 225.7 2.6% Subordinated debt 625.7 775.9 24.0% Minority shareholders’ Interests 253.1 262.9 3.9% Subscribed share capital 760.0 760.0 0.0% Reserves 268.8 303.4 12.9% Net profit 140.1 163.8 17.0%
Total shareholders’ equity 1 168.9 1 227.3 5.0% Total liabilities and shareholders’ equity 25 669.1 26 195.3 2.0% Note Bank guarantees 3 122.8 2 907.0 (6.9%) Bank guarantees2 4 716.5 5 562.0 17.9%
1) Customer deposits and other resources, namely, cheques and payment orders, securities sales and repurchase operations. Table 51 2) The amount of unit trust funds included in these resources has been corrected for fund units held in the portfolios of the Group’s banks.
108 Banco BPI | Annual Report 2003 Loans to Customers The consolidated loan portfolio grew by 7.1%. The portfolio Loans to customers1 and Loan portfolio in 2003 guarantees Breakdown by Customer of performing loans relating to domestic activity (which segment represents 99% of the consolidated loan portfolio) increased Bi.€ 24 by 5.9%. This reflects the ongoing priority attributed to 20.7 mortgage lending and the selectivity employed in loan 19.7 18.8 concession, in particular, with regard to corporate loans. The 18 16.5 38.8% mortgage-loan portfolio expanded by 16.5%, well above the 3.9% estimated average market growth of 12.2%1. The weight of 12.0 12 14% mortgage lending relative to the total performing-loan portfolio climbed from 39% in 2002 to 43% in 2003. 43.2% 6
Safeguarding a return on shareholders’ equity that is compatible with the risk assumed, Corporate Banking’s loan 0 99 00 01 02 03 portfolio declined by 1.4%. Selectivity in lending activity continued to be pursued, at the same time as more stringent Guarantees Loans to companies, Mortgage loans Wholesale, Project Finance standards were applied in the control of the larger exposures. Other loans to Customers and Institutional Banking Mortgage loans In 2003 Corporate Banking carried out a reallocation of its 1) Gross loan portfolio. Other loans to individuals and small businesses loan portfolio which in general terms translated itself into a Other significant increase in the Project Finance area’s activity and Chart 65 Chart 66 geographical coverage. In this regard, a number of operations were transferred which, in terms of outstanding balances at the end of 2002, corresponded to a reduction of EUR 310 million in Wholesale Banking’s portfolio and increases of EUR 117 million in the Large Companies’ portfolio and EUR 215 million in the Project Finance portfolio. Based on the adjusted balances of the portfolios in 2002, Wholesale banking’s Customer loans’ portfolio fell by 18% in 2003, loans to large companies decreased by 4.4%, while the loan portfolio of the Project Finance segment recorded an expansion of 19%. Also noteworthy was the 28% increase in Institutional Banking’s loan portfolio.
1) Year-on-year changes in December 2003. Source: Bank of Portugal, “Economic indicators, January 2004”.
Report | Financial review 109 Customer loan portfolio Amounts expressed in millions of euro 2002 % 2003 % ∆%
Domestic activity Wholesale Banking 2 177.2 13% 1 526.0 9% (29.9%) Large companies 1 442.0 9% 1 490.5 8% 3.4% Medium-sized companies 2 321.8 14% 2 331.9 13% 0.4% Project Finance 356.5 2% 678.3 4% 90.3% Institutional Banking 613.2 4% 786.9 4% 28.3% Corporate and Institutional Banking 6 910.8 42% 6 813.6 39% (1.4%) Mortgage loans 6 507.1 39% 7 583.0 43% 16.5% Loans to individuals – other purposes 846.1 5% 861.8 5% 1.9% Loans to small businesses 1 517.0 9% 1 602.9 9% 5.7% Loans to individuals and small businesses 8 870.1 54% 10 047.7 57% 13.3% Specialised loans – leasing and long-term rental1 372.2 2% 273.8 2% (26.4%) Other 286.2 2% 277.9 2% (2.9%)
Domestic activity 16 439.4 100% 17 413.0 99% 5.9% International activity 82.5 0.5% 130.9 0.7% 58.6% Portfolio of performing loans 16 521.8 100% 17 543.8 100% 6.2% Total loans in arrears 256.4 239.2 (6.7%) Specific provisions 143.0 144.7 1.2%
Net loan portfolio 16 635.3 17 638.3 6.0% Adjustment for the change in the consolidation perimeter2 (162.7) - -
Consolidated net loan portfolio 16 472.6 17 638.3 7.1% Bank guarantees 3 122.8 2 907.0 (6.9%) Note:: an apportionment was made of loans in the form of leasing, factoring and long-term rental (ALD) amongst the various Customer segments. Table 52 1) Commercial loans not allocated to segments. 2) In 2003 the accounts of BPI Rent began to be fully consolidated in June 2003, and those of BPI Locação and Eurolocação in December 2003. Also in December 2003 Banco Fomento Mozambique was merged by incorporation into Banco Comercial e de Investimentos (BCI Fomento), as a result of which the BPI Group now owns a 30% stake in the latter, while its accounts have been consolidated using the equity method. For analysis purposes, the adjustment to the loan portfolio was done in December 2002.
Portfolio of securities and participating interests At 31 December 2003, the BPI Group’s portfolio of of EUR 265.8 million in the trading portfolio and EUR securities and participating interests totalled EUR 3 676.9 123.6 million in the investment portfolio. million, or EUR 96.6 million (+2.7%) more than at the end 2002. At the end of 2003, the dealing portfolio represented 4.5% of total assets, the investment portfolio 7.4% and the It is worth highlighting on the one hand the growth of EUR participating interest and financial fixed assets portfolio 524.1 million in the portfolio of bonds issued by highly-rated 2.1%. foreign companies, thereby taking advantage of a phase in which the spreads were situated at appreciably high levels and, on the other, the reductions in public-issuer securities
110 Banco BPI | Annual Report 2003 Securities and participating interests portfolio Amounts expressed in millions of euro 2002 % 2003 % ∆%
Dealing portfolio Bonds of public-sector issuers 1 384.0 39% 1 118.2 30% (19.2%) Bonds of international financial bodies - - 16.1 0% - Bonds of other issuers 0.6 0% 10.2 0% 1 684.5% Equities and other variable-yield securities 73.1 2% 39.6 1% (45.8%)
Subtotal – dealing portfolio 1 457.7 41% 1 184.2 32% (18.8%) Investment portfolio Bonds of public-sector issuers 761.0 21% 637.4 17% (16.2%) Bonds of international financial bodies 159.3 4% 42.4 1% (73.4%) Bonds of other issuers 551.9 15% 1 117.2 30% 102.4% Equities and other variable-yield securities 76.6 2% 152.9 4% 99.6%
Subtotal – investment portfolio 1 548.8 43% 1 949.9 53% 25.9% Participating interests Investments1 537.3 15% 574.2 16% 6.9% Other financial fixed assets2 65.7 2% 40.0 1% (39.1%) Provisions for unrealised losses in participating interests (29.2) (1%) (71.4) (2%) -
Subtotal – participating interests 573.8 16% 542.9 15% (5.4%) Total – securities and participating interests portfolio 3 580.3 100% 3 676.9 100% 2.7%
1) Investments in associated companies not included in the consolidation perimeter (with the exception of the shareholding in Viacer) and other financial investments. Table 53 2) Accounted for in the caption «other assets»; do not include loans.
At the end of 2003, the balance sheet value of the Moreover, the existing portfolio of participating interests2 participating interests and financial fixed assets portfolio recorded a capital appreciation of EUR 118.4 million, of (net of provisions) was EUR 542.9 million. which EUR 73.0 million corresponds to the reduction in unrealised losses on the portfolio. If the average quoted price The most significant investments made in 2003 were the for the last six months is taken into account (i.e. the acquisition (costing EUR 20 million) of an additional interest criterion defined by Bank of Portugal Notice 4 / 2002 which of 15% in the SIC television station through the exercise of a sets out the regime for covering unrealised losses on preferential right on the sale of this holding, and the participating interests), the portfolio rose in value by EUR subscription to 50% of the capital of the venture capital fund 71.9 million, of which EUR 38.8 million represents the – Fundo Caravela (involving an outlay of EUR 10 million). This decrease in unrealised losses. fund, managed by BPI, commenced its activity in 2003.
During the course of 2003, investments with a balance sheet value of EUR 45.2 million were sold, generating capital gains of EUR 8.6 million1.
1) Does not include the gain of EUR 9.2 million realised on the sale of the 17% holding in Banc Post which was included in the Group’s consolidation perimeter. This gain corresponds to a capital gain of EUR 4.5 million, plus a further receipt of EUR 4.7 million as consideration for the undertaking not to compete with Banc Post in the Rumanian banking business during the next three years. 2) Based on the closing share prices of the listed companies and the value attributed to the shares of unquoted companies, calculated in accordance with the criterion prescribed in Notice 4 / 2002, that is, the shareholders’ equity multiplied by a factor of 1.5 (except in the cases of Viacer and Sic where the attributable values are BPI estimates).
Report | Financial review 111 At 31 December, the portfolio of participating interests If the average prices of the last six months for the listed registered a positive balance between unrealised capital companies and BPI estimate for unquoted companies are gains and losses (net of provisions) of EUR 68.4 million, considered, the balance between unrealised capital gains based in the closing prices at the end of the year for the and losses stood at a positive figure of EUR 11.5 million. listed companies and BPI estimate for unquoted companies.
Unrealised capital gains / losses, net of provisions, on participating interests Amounts expressed in millions of euro Gross Balance % of Accumu- Unrealised capital gains / losses, net of provisions balance sheet value, capital lated sheet net of using the average share using the closing share held provisions value provisions price Jun.-Dec. 03 price at 31 Dec. 03 Investments with potential capital gains Viacer1 26.0% 15.9 - 15.9 114.1 114.1 SIC1, 2, 3 15.0% 20.0 - 20.0 29.5 41.1 Other 37.9 1.6 36.3 33.8 33.6
Subtotal 73.8 1.6 72.2 177.5 188.8 Investments with unrealised capital losses Portugal Telecom 1.7% 223.2 18.6 204.6 (61.4) (39.0) Impresa 10.3% 63.3 11.8 51.6 (27.1) (21.4) SIC1, 3 19.9% 146.3 23.4 122.9 (57.1) (41.7) Other 67.7 11.1 56.5 (20.4) (18.3)
Subtotal 500.4 64.9 435.5 (166.1) (120.4) Total investments portfolio 574.2 66.6 507.7 11.5 68.4 Note: Other financial fixed assets with unrealised capital losses 0.11 0.03 0.08 0.06 0.06
1) The value attributed to the participating interest represents BPI’s estimate. Table 54 2) Participating interest acquired in 2003, through the exercise by BPI of the right of preference in the operation involving the sale of this participating interest. 3) BPI has an additional participating interest in SIC of 6.4% in the equities investment portfolio with a balance sheet value (net of provisions) of EUR 26.2 million. The value of this participating interest at the end of 2003, estimated on the basis of Impresa’s closing share price on 31 December 2003, was EUR 26.2 million (EUR 21.2 million if based on Impresa’s average share price for the last 6 months). BPI’s aggregate participating interest in SIC at the end of 2003, taking into consideration the equities investment and participating interests portfolios, amounted to 41.4%.
In terms of the transitional regime envisaged in Bank of By the end of 2003, BPI had already attained the total Portugal Notice 4 / 2002 governing the cover for unrealised provisioning level required by the Bank of Portugal. losses on participating interests acquired up until 31 Accordingly, taking into account the existence of the 15% December 2001, were created in 2003 EUR 40.9 million of corridor not subject to provisioning in the amount of EUR provisions by way of a direct charge against reserves and, 73.6 million, and the deduction of EUR 46.4 million already therefore, had no impact in the income statement, and EUR effected from Tier II capital, the amount of unrealised losses 0.3 million of provisions recognised in the income to be covered, based on the average quoted price of the last statement. On the other side, EUR 13.3 million was written 6 months, was EUR 46.1 million, which amount will be off from own funds, but only for purposes of calculating the written off Tier II capital in a graduated manner until 2006. capital-adequacy ratio.
112 Banco BPI | Annual Report 2003 Cover for unrealised losses on Unrealised capital gains and losses1 participating interests Amounts expressed in millions of euro Using the last six month average Using the closing share prices2 2 31 Dec. 03 share prices
M.€ M.€ Gross balance sheet value1 500.6 280 280 Unrealised losses1, 2 231.1 253 243 Provisions1 65.0 221 218 Unrealised losses net of provisions 166.1 210 210 189 Deduction from own funds for the purposes of 178 calculating the own funds requirements ratio 46.4 166 Corridor3 used 73.6 140 140 Losses not covered (under the transitional regime) 46.1 121 Amount to be deducted from own funds (Tier II) from 2004 to 2006 - In 2004 23.1 70 70 In 2005 13.8 In 2006 9.2
Total (from 2004 to 2006) 46.1 0 0 Dec.02 Jun.03 Dec.03 Dec.02 Jun.03 Dec.03 1) Gross balance sheet value of investments (EUR 500.4 million) and Table 55 other financial fixed assets (EUR 0.11 million) with unrealised capital losses. At the end of 2003, the unrealised capital losses in investments amounted to Unrealised capital losses EUR 231.0 million and in other financial fixed assets amounted to EUR 0.1 million. Unrealised capital gains The accumulated provisions in the balance sheet were, respectively, EUR 64.9 million and EUR 0.03 million. 1) Net of provisions. Chart 67 2) Calculated in accordance with Notice 4 / 2002: market value of listed companies 2) For listed companies. calculated with reference to the average share price of the last 6 months, and in the case of unquoted companies, the attributable value corresponds to the shareholders’ equity multiplied by a factor of 1.5, except for Viacer and Sic, whose attributable value represents BPI’s estimate. 3) The usable “corridor” corresponds to 15% of the gross balance sheet value.
BANK OF PORTUGAL NOTICE 4 / 2002 In June 2002 came into force the new regime for the A transitional regime was defined for unrealised losses at 30 provisioning and the deduction from own funds of unrealised June 2002 (date on which Notice 4 / 2002 came into force) losses in the portfolio of participating interests in entities not on participating interests acquired up until 31 December subject to supervision by the Bank of Portugal or the Insurance 2001, which establishes minimum and gradual provisioning Institute of Portugal. The regime applies when such unrealised levels and deductions from own funds up until 2006. The losses exceed 15% of the corresponding cost of acquisition transitional regime permits the creation of provisions in 2002 (Bank of Portugal Notice 4 / 2002). and 2003 directly against reserves and, consequently, with no impact in the income statement. Of the amount of unrealised losses which exceed 15% of cost of acquisition, a minimum of 40% must be covered by provisions, while the balance has to be deducted from own funds for purposes of calculating the own funds requirements ratio.
Report | Financial review 113 Customer resources Customer resources carried in the Group’s consolidated resources taken by the Group stood at EUR 17 255.8 balance sheet at 31 de December 2003 amounted to million, up 5.3% relative to 2002. On that date, loans to EUR 13 876.1 million, 0.7% more than in 2002. Customers (gross) represented 103.1% of the more stable third-party resources. On-balance sheet Customer resources in domestic activity grew by 0.6% to EUR 13 389.3 million, representing 96% Total customer resources1 of total Customer resources carried in the Group’s balance Bi.€ 20 sheet. Customer deposits declined by 0.4%, thus reflecting 18.2 17.4 17.7 the disintermediation of balance sheet resources. In this 16.5 14.8 regard, the 7.4% drop in term deposits and the 10.6% 15 increase in sight deposits were essentially associated with Customers’ preference for liquidity. 10 Off-balance sheet customer resources The balance of resources taken in the form of structured On-balance sheet customer 5 products increased 8.8% or EUR 136.8 million as a result resources of the placing of new structured issues, mostly indexed to 1) Corrected for duplication of balances. interest rates, in the amount of EUR 478.9 million, whilst a 0 99 00 01 02 03 Chart 68 significant amount of issues (namely, those indexed to the stock markets) matured during the course of the year. At the end of 2003, debt securities placed with Customers had a Debt securities1 maturity Projection of outstanding balances residual maturity of 2.5 years. Bi.€ 6.0 Also noteworthy was the 21.1% increase in deposits, to 5.1 4.4 EUR 486.7 million, at the activity carried on in Angola. 4.5
3.0 2.9 Complementing the growth in the BPI Group’s Customer 1.8 resources base, priority was given in 2003 to attracting 1.5 1.3 medium and long-term resources from institutional investors. 0.6 0.5 0.5 0.4 0.4 0.1 0.1 The more favourable background, marked by diminishing 0.0 20032005 2007 2009 2011 2013 ... loan spreads on the international markets and investors’ improved perception of the risk of bank lending in general, New issues in 2003 Chart 69 Issues prior to 2003 and Portuguese banks in particular, permitted the flotation of 1) Senior and subordinated debt placed with Customers and institutional investors. issues at progressively lower costs. It was thus possible to raise the weight of stable resources, more synchronised to the maturity profile of assets, thereby limiting the recourse to the money market. At the end of 2003, the total of stable
114 Banco BPI | Annual Report 2003 Total balance sheet resources Amounts expressed in millions of euro 2002 % 2003 % ∆%
Domestic activity Sight deposits 4 552.6 28% 5 036.9 29% 10.6% Term and savings deposits 7 193.0 44% 6 657.7 39% (7.4%) Total deposits 11 745.6 72% 11 694.6 68% (0.4%) Structured products – guaranteed capital / limited risk, and fixed-rate bonds 1 557.9 10% 1 694.7 10% 8.8%
Customer resources – domestic activity 13 303.6 81% 13 389.3 78% 0.6% International activity Deposits held by Banco Fomento Angola 401.8 2% 486.7 3% 21.1% Deposits held by Banco Fomento Mozambique1 77.1 0.5% ---
Customer resources – international activity 478.9 3% 486.7 3% 1.6% Total Customer resources (consolidated) 13 782.5 84% 13 876.1 80% 0.7% Debt securities placed with institutional investors 1 983.5 12% 2 603.8 15% 31.3% Subordinated debt 625.7 4% 775.9 4% 24.0%
Total balance sheet resources 16 391.7 100% 17 255.8 100% 5.3% Transformation ratio of total resources into loans 101.4% 103.1%
1) In December 2003, Banco de Fomento in Mozambique was merged by incorporation into Banco Comercial e de Investimentos (BCI Fomento), Table 56 as a result of which the BPI Group now has a 30% stake in the latter and whose accounts are now equity-accounted in the Group’s consolidated financial statements.
Off-balance sheet Customer resources expanded by 17.9% and unit-linked insurance, reflecting a commercial product when compared with 2002 as a result of the placement of range adjusted to a demand profile characterised by the bond and money-market investment funds, retirement plans preference for lower-risk products.
Total Customer resources Amounts expressed in millions of euro 2002 % 2003 % ∆%
On-balance sheet resources (consolidated) 13 782.5 78% 13 876.1 76% 0.7% Off-balance sheet resources Unit trust (mutual) funds 2 458.3 14% 2 862.2 16% 16.4% Retirement (PPR) and equity (PPA) savings plans 1 194.4 7% 1 305.0 7% 9.3% Capitalisation (unit-linked) insurance 1 063.8 6% 1 394.8 8% 31.1%
Subtotal 4 716.5 27% 5 562.0 31% 17.9% Elimination of double recording1 (808.7) (5%) (1 224.1) (7%)
Total Customer resources 17 690.3 100% 18 213.9 100% 3.0%
Note: total resources corrected for duplication. Table 57 1) Placements in deposits of the unit trust funds and of a company managing capitalisation products.
Report | Financial review 115 Shareholders’ equity Shareholders’ equity totalled EUR 1 227.3 million at the Shareholders’ equity evolution in 2003 end of 2003. M.€ 1 600 163.8 1 227.3 Shareholders’ equity Amounts expressed in millions of euro 1 168.9 1 200 -60.4 -40.9 -4.2 2002 2003
Shareholders’ equity at beginning of the year 908.7 1 168.9 800 Previous year’s dividends paid (57.9) (60.4) Net profit 140.1 163.8 400 Cash proceeds from capital increase in May 2002 200.2 - Provisions for participating interests 0 (Notice no. 4 / 2002) (19.0) (40.9) Shareholders’ Net profit2002 Provisions for Other Shareholders’ equity at dividends participating equity at Goodwill paid on the acquisition of participating interests - (9.0) Dec. 2002 payment interests Dec. 2003
Other (3.2) 4.8 Chart 70 Shareholders’ equity at the end of the year 1 168.9 1 227.3 Of which: capital, reserves and retained earnings1 1 155.0 Dividend declared for the year 68.4 Revaluation reserves 3.9
1) After deduction of dividends payable with respect to the year Table 58 (does not include revaluation reserves).
Own funds
Own funds increased by EUR 76.3 million (+4.5%) relative the cover for unrealised losses on participating interests to 2002. The principal explanatory factors were: with a impact on basis capital of EUR 54.3 million, of which EUR 40.9 million by way of the reduction of Tier I With a positive impact: capital through the constitution of provisions directly against reserves and EUR 13.3 million by way of deduction Net profit for the year to be retained after the distribution from Tier II capital only for purposes of calculating the own of dividends1 in the amount of EUR 95.4 million; funds requirements ratio. At 31 December 2003, BPI had already attained the total provisioning level required by the The flotation of a non-perpetual subordinated debt issue of Bank of Portugal, at the same time as there existed EUR EUR 244 million; 46.1 million of unrealised losses to be covered, which amount will be written off from Tier II capital in a With a negative impact: graduated manner until 2006.
the redemption of a perpetual subordinated-debt issue in
the amount of EUR 74.8 million and the maturity of a The conclusion in the year of 487 early retirements, which subordinated-debt issue of EUR 24.7 million; entailed contributions to the pension funds in order to cover the additional obligations amounting to EUR 68.8 million2.
1) In accordance with the proposed appropriation of net profit. 2) The contributions relating to the early retirements concluded are being recognised in the income statement over a maximum period of 10 years. For purposes of calculating regulatory own funds, the contributions to the pension fund relating to early retirements, as regards that portion still not disclosed as a cost, are written off from basis own funds. In 2003,, of the amount of EUR 68.8 million of contributions to the pension fund, EUR 7.0 million has already been recognised in the income statement.
116 Banco BPI | Annual Report 2003 Own funds – Calculated according to Bank of Portugal rules Amounts expressed in millions of euro 2002 2003 ISSUE OF BPI CAPITAL FINANCE SERIES C
Share capital, reserves and retained earnings1 1 106.7 1 155.0 PREFERENCE SHARES Minority interests 243.2 253.4 On 5 August, BPI floated a EUR 250 million issue of [of which, preference shares] [238.4] [250.0] non-voting preference shares through its subsidiary BPI Fund for general banking risks 1.0 1.0 Capital Finance. This type of instrument is eligible as a Contributions to the pension fund component of Basis Own Funds, with the result that still not disclosed as cost (89.3) (142.1) owing to its degree of subordination, it pays a higher Intangible assets (29.1) (27.7) premium relative to the other debt. Initially conceived Treasury stock (3.0) (29.6) for an amount of EUR 100 to EUR 150 million, the Basis own funds 1 229.5 1 209.9 issue was finally fixed at EUR 250 million: the attractive Revaluation reserves 1.4 3.9 conditions of the preferential dividend and the indexed Perpetual subordinated debt 135.1 55.5 structure – Euribor +1.55% for 10 years – were Participating bonds and non-perpetual responsible for the strong demand, especially on the part subordinated debt 425.9 605.0 of Portuguese institutional investors. These accounted for Complementary own funds 562.4 664.4 65% of the issue’s total placement, followed by Dutch Deduction of participating interests (31.6) (25.2) investors with 13%, Spanish investors with 7% and Securities acquired in securitisation operations (4.8) - Greek investors with 6%. In the wake of this issue, BPI Unrealised losses on participating interests not provided for (33.1) (46.4) exercised the early redemption option over the B and A Other deductions (10.5) (14.9) series involving a total of USD 250 million with an Deductions (80.0) (86.5) average cost of Libor +2.23%, which represented an Supplementary own funds - 0.5 average saving on spread of about 0.68% on an annual Total own funds 1 711.9 1 788.3 basis. In the months that followed the placement, the
1) After deduction of dividends declared for the year. Table 59 issue price rose sharply, thus reflecting the decline in the Bank’s risk premium within the context of particularly favourable credit markets. At the end of 2003, the spread relative to Euribor was situated at 1.40% having reached 1.22% in the middle of January 2004.
Report | Financial review 117 Own funds requirements
Total own funds requirements increased by EUR 98.3 million In the securities portfolio, which required an additional (+7.3%) relative to 2002. The most significant increases in EUR 48.6 million (+111%), as a result primarily of the fund requirements were observed: increase in foreign corporate bonds.
In the loan portfolio, which expanded 7.1% and required a The capital required to cover the risks associated with the further EUR 48.2 million of own funds (+4.8%), thus dealing portfolio and the positions in foreign currency reflecting the increase in mortgage loans (with a lower represents a mere 1.6% of total own funds requirements. consumption of capital), while lending by the wholesale banking area registered a significant decrease;
Own funds requirements – Calculated according to Bank of Portugal rules Amounts expressed in millions of euro 2002 2003 Assets (net) Weighted Risk-weighted Assets (net) Weighted Risk-weighted (balance sheet average assets (balance sheet average assets value) coefficient value) coefficient Liquid assets 855.5 7.7% 66.0 1 036.7 9.3% 96.7 Loans to credit institutions 1 794.8 20.4% 367.0 1 111.9 18.8% 209.4 Loans to Customers 16 472.6 76.0% 12 524.1 17 638.3 74.4% 13 127.1 Bonds and equities portfolio 1 541.9 35.4% 546.2 1 959.2 58.9% 1 153.4 Investments 654.5 100.0% 654.5 638.4 100.0% 638.4 Tangible fixed assets 291.1 100.0% 291.1 312.7 100.0% 312.7 Sundry assets 442.0 56.9% 251.4 300.6 68.5% 205.8
Assets 22 052.4 66.7% 14 700.3 22 998.0 68.5% 15 743.5 Off-balance sheet items 1 984.9 2 120.6 (-) Provisions for general credit risks (188.4) (169.9)
Risk weighted assets 16 496.8 17 694.1 Credit risks (weighted assets x 8%) 1 319.7 1 415.5 Securitisation operations 2.7 2.5 Market risks 20.7 23.3
Total own funds requirements 1 343.1 1 441.4 Total requirements x 12.5 16 788.6 18 017.1
Table 60
118 Banco BPI | Annual Report 2003 Own funds requirements ratio At 31 December 2003, the own funds requirements ratio, Own funds and own funds Capital ratios requirements At 31 December 2003 calculated according to Bank of Portugal rules, stood at Bi.€ 9.9% and the Tier I capital ratio at 6.7%. 2.0 1.8 1.7 1.6 11.1% The preference shares represented 20.7% of Tier I. Core 1.5 1.5 9.9% capital, that is, basis own funds less preference shares, 1.3 4.3% 3.2% represented 5.3% of risk weighted assets. 1.0 1.4% 1.4% Own funds requirements ratio – Calculated according to Bank of Portugal rules Amounts expressed in millions of euro 2002 2003 0.5 6.7% 6.8% 5.3% 5.4% Total own funds 1 711.9 1 788.3 [Of which, basis own funds] [1 229.5] [1 209.9] 0 Total own funds requirements 1 343.1 1 441.4 99 00 01 02 03 Bank of Portugal BIS Total own funds requirements x 12.5 16 788.6 18 017.1 Own funds Tier II Own funds requirements ratio 10.2% 9.9% Own funds requirements Preference shares Tier I Tier I capital 7.3% 6.7% Core Capital Table 61 Chart 71 Chart 72
At the end of 2003, using Bank of International Settlement (BIS) rules, total ratio was 11.1% and Tier I capital 6.8%.
Report | Financial review 119 Pension obligations
At 31 December 2003, the Group’s pension funds had net Pension obligations cover Amounts expressed in millions of euro assets which guaranteed the complete funding (101.4%) of 2002 2003 Obligations for current pensions under payment 1 134.3 1 273.1 pension obligations recognised in the balance sheet. Obligations for past services of current Employees 315.4 287.9
Total pension obligations 1 449.7 1 561.1 In 2003, the pension funds achieved an annual average net Disability decreases 87.9 85.5 return of 14.7%, which made it possible to reduce the Total obligations recognised in the balance sheet1 1 361.8 1 475.5 margin used for the “corridor” by EUR 94.8 million. This Pension funds 1 363.4 1 495.5 corridor is contemplated by the Bank of Portugal in order to Financing of obligations recognised in the balance sheet 100.1% 101.4% accommodate actuarial and fund income variances without 1) Taking into account disability decreases in the calculation of the Table 62 engendering an impact on earnings. In this fashion, the amount of the obligations. accumulated negative variances in the “corridor” decreased from EUR 120.4 million in December 2002 to EUR 25.6 million in December 2003. At the end of 2003 there was an unutilised margin in the aforementioned “corridor” of EUR 130.5 million (in December 2002 the unutilised margin was EUR 24.6 million).
At 31 December 2003, there were pension obligations of EUR 85.5 million1 which are being funded and recognised in the financial statements by way of a plan of uniform instalments commencing in 2002 and extending over a maximum period of 20 years.
If this amount is also taken into account, the total cover of pension obligations by the funds’ net assets was situated at 95.8% at the end of 2003 (94.0% in 2002).
1) As a result of the entry into force at the end of 2001 of the current regulatory framework relating to pension obligations’ cover (Bank of Portugal Notice 12 / 2001), there was an increase in the present value of pension obligations by virtue of the fact that the disability decreases could no longer be used in the calculation of the present value of pension obligations.
120 Banco BPI | Annual Report 2003 PENSION OBLIGATIONS – REGULATORY FRAMEWORK
The most important aspects of the present regulatory the losses and gains resulting from the variance between framework as regards cover of pension obligations (Bank of actuarial assumptions and the actual amounts noted Portugal Notices 12 / 2001 and 7 / 2002), in force since the (actuarial gains and losses) have two distinct accounting end of 2001, are: treatments depending on whether the accumulated figure exceeds or not a specified interval (“corridor”). The
the mandatory requirement that the net assets of the pension “corridor” corresponds to 10% of the larger of the amount of funds guarantee a minimum cover of 100% of current pension obligations or the funds’ net assets (with reference to pensions under payment, whilst a minimum cover of 95% the end of each year). was laid down for the obligations relating to past services of current Employees; In this regard, the actuarial losses (gains) recorded:
the non-utilisation of the disability decreases1 in the are recorded under the caption “valuation fluctuations” (in calculation of the present value of the obligations for the past the accrual and deferral accounts), until the accumulated services of current Employees; amount is equal to the limit defined by the “corridor”, not giving rise to any impact in the income statement;
the increases in obligations for early retirements and changes to
actuarial assumptions2 are recorded as a deferred cost in the the portion situated outside the interval is recorded as a accruals and deferral account. The increases in obligations for deferred cost or income item (in the accrual, deferral and early retirements are recognised as a cost in the extraordinary other accounts) and recognised in the income statement in a items accounts on a straight-line basis over a maximum period minimum amount of 10% per year, with effect from the of 10 years and the increases arising from changes to actuarial financial year after its respective calculation. assumptions are recognised as a cost in the extraordinary items account, at least for 10% per year, starting in the following year to the one in which they are identified;
1) Decrease in the present value of obligations as a result of taking into consideration the probability of Employees ceasing to form part of the current staff complement due to disability before the normal retirement date. 2) In the same way, the decreases in the amount of pension obligations which resulted from changes to the actuarial assumptions are disclosed as income in the income statement at least for 10% per year, starting in the following year to the one in which they are identified.
Report | Financial review 121 BPI GROUP PENSION FUNDS In terms of Bank of Portugal rules, banks are required to Early retirements guarantee that pension obligations are funded exclusively by Following the acquisition of the commercial banks (BFB in way of pension funds. Other financial companies must ensure 1991 and BFE and BBI in 1996), intensive programmes were full funding of retirement obligations by pension funds or by an implemented directed at modernising and enhancing the insurance contract serving the same purposes, while the efficiency and competitiveness of the structures acquired. unfunded portion must be covered by provisions carried in the Workforce rationalisation and rejuvenation was one the balance sheet. priorities assumed and which translated itself into the implementation of an early-retirement programme. This The Group’s pension funds fully guarantee the old age, entailed a large financial commitment aimed at covering the disability and survivors’ pensions of the banks’ Employees and increase in pension obligations. In the period 1995 to 2003, a former Employees (Banco BPI and Banco Português de total of 3 429 early retirements have been realised which have Investimento) and of the subsidiaries which adhered to the led to an increase of EUR 492 million in pension obligations. Vertical Collective Employment Agreement (BPI Fundos and Inter-Risco). Within the ambit of the strategic programme directed at raising efficiency and reducing costs in the period 2002-2004, a At the end of 2003, the net assets of the funds totalled EUR programme of early retirements is in progress that has already 1 496 million (which exceeds the Group’s shareholders’ equity resulted in the conclusion of 927 early retirements in 2002 of EUR 1 227 million on the same date) and encompassed a and 2003. universe of 6 261 current Employees and 6 666 pensioners and 1 131 former Employees. Pension funds assets and BPI Group Employees pension liabilities
€ Recapitalisation of the pension funds M. 1 600 When the Group ventured into Commercial Banking in 1991 through the acquisition of Banco Fonsecas & Burnay (BFB), 1 200 BFB had a pension fund shortfall of EUR 128 million (of which EUR 89 million refers to obligations for current pension 800 payments and EUR 39 million to pension obligations for the past services of current Employees). Hence at the time of the 400 acquisition, the shortfall in pension funds’ net assets to meet the obligations of current pension payments was covered by 0 setting aside provisions in the balance sheet. 91 92 93 94 95 96 97 98 99 00 0102 03
Pension funds Chart 73 As a consequence of the financial effort made, at the end of Past service liabilities 1995, the pension funds fully covered the obligations for current pension payments, while 100% cover for the retirement obligations relating to current Employees was achieved at the end of 1998.
122 Banco BPI | Annual Report 2003 Returns In 2003 the BPI Group’s staff pension funds achieved an Breakdown of Banco BPI Employees pension funds assets annual average gross return of 15.2%. Dec. 2003 Liquidity 15.4%
Since 31 December 1991, the Group’s pension funds have Variable-rate bonds 9.3% earned an annual average return of 11.5%, whilst the pay Fixed-rate bonds 25.3% increases under the Banking Sector’s ACTV salary scale Foreign equities 4.9% averaged 4.2% and the pension-fund market’s return median Domestic equities 32.6% was situated at 8.4% (according to data disclosed by Mercer Real estate 12.6% Investment Consulting). Total 100% Table 63
At 31 December 2003, Banco BPI Pension Fund’s portfolio, which corresponded to 99% of the total net assets of the Group’s staff pension funds, presented the following composition:
BPI Group Employees pension funds BPI Group Employees pension funds Return vs inflation and ACTV salary scale review Return vs. market performance
% % 25 25
19.9 19.9 20 18.3 20 18.3 16.1 16.0 14.1 16.1 16.0 15.2 15 14.1 15.2 15 16.1 17.3 11.5 13.2 14.4 10.9 10 6.7 8.6 10.5 10.9 11.3 7.4 7.8 10 8.6 3.3 5.7 7.4 5 5.7 6.9 8.9 6.5 1.9 3.6 4.5 4.4 5 5.2 3.9 5.5 3.3 3.0 3.3 3.3 3.3 0 1.2 4.0 4.1 3.9 3.3 3.1 2.8 2.9 2.6 -2.0 2.2 2.3 1.9 3.2 -3.3 0 -5 92 93 94 95 96 97 98 99 0001 02 03 92 93 94 95 96 97 98 99 0001 02 03
BPI Group Employees pension funds return Chart 74 BPI Group Employees pension funds return Chart 75 ACTV salary scale review Pension funds market’s return median Inflation rate
Source: Mercer Investment Consulting
Report | Financial review 123 INTERNATIONAL ACCOUNTING STANDARDS The International Financial Reporting Standards (IFRS) issued Financial instruments by the International Accounting Standards Board (IASB) aim to Financial instruments are classified into four categories which harmonise international accounting standards, thereby determine their form of measurement and recognition of the achieving greater comparability between enterprises, more respective variations in the balance sheet value. transparency and better quality information. In this fashion, Variations in balance Measurement the markets expect to witness increased confidence on the part Asset classification sheet value of all interested parties. Dealing Fair value Income statement Held to maturity Amortised cost Income statement
In terms of the European Council’s Regulation 1606 / 02, Loans and accounts receivable Amortised cost Income statements companies with securities listed on stock exchanges in Europe Available for sale Fair value1 Shareholders’ funds2 are obliged to present consolidated accounts in accordance 1) except in situations where the fair value cannot be Table 64 measured reliably. with the IFRS with effect from 1 January 2005, an obligation 2) until the asset is sold, collected, abandoned or the respective impairment determined, at which moment the variations are recorded in the income which applies to Banco BPI. The Regulation also requires the statement for the period. presentation of comparative figures for the preceding year which are restated in conformity with the IFRS, except insofar In the measurement of financial instruments, it is assumed that as Standards 32 and 39 are concerned (relating to the the company is capable of determining its fair value (“amount presentation of information and the accounting for financial for which an asset could be exchanged or a liability settled instruments and to the recognition and measurement of these between knowledgeable and willing parties in a transaction financial instruments, respectively). realised under normal market conditions”). When this is not possible, the investments must be maintained at cost net of any PRINCIPAL ALTERATIONS TO THE PRESENT CHART OF impairment losses. ACCOUNTS From the analysis carried out so far, the following are the major Contrary to their current treatment, both unrealised gains and losses differences between the IFRS and the Chart of Accounts for in the portfolio of participating interests must now be reflected in the Portuguese Banking System (PCSB): the balance sheet value, with a corresponding adjustment made in the shareholders’ funds caption (fair value reserve). Impairment The concept of impairment applies when the recoverable value All derivatives (hedging or built into other instruments) are (or fair value) of an asset is lower than its book value. revalued at fair value. Impairment can exist in terms of an individual asset, an operating group of assets or the company as a whole (goodwill). Where impairment is determined in assets available for sale, the As a general rule, any loss arising from impairment must be total amount recorded in the fair value reserve must be recognised in the income statement. recognised in the income statement.
The calculation and recognition of losses stemming from loan Hedge accounting impairment are extremely complex. The provisions are based The hedge relationship must be formally documented, with its on discounted cash flow methods and are created only in those efficacy being tested in each period. Taking into account the cases where impairment can be determined (general credit complex and limitative requirements for the accounting provisions and provisions for general banking risks cease to treatment of hedging operations, it is expected that a large exist). number of transactions will now be treated as dealing operations.
124 Banco BPI | Annual Report 2003 De-recognition of assets The de-recognition of assets (that is, the assets concerned Early retirements are fully recognised as costs of the year in cease to be carried in the balance sheet) should only occur which they occur. when control over the asset’s contractual rights is lost. De-recognition should not occur where there is an obligation The existence of a “corridor” is retained and, besides the for future repurchase or where the company retains certain actuarial variances, changes to assumptions must also be risks / benefits relating to the asset sold. contemplated in this corridor. Amounts falling outside the corridor must be amortised over a period corresponding to the The principles of de-recognition of financial assets are to be difference between the expected average retirement age and applied to transactions taking place after 1 January 2004. the average age of current Employees (in accordance with the Bank of Portugal’s current rules, the amortisation period is 10 Intangible assets years). The definition of an intangible asset is more stringent than the present one and, therefore, expenses which do not conform to Deferred tax this definition must be fully recorded as a cost in the year Deferred tax assets and liabilities are recognised. A deferred incurred (advertising costs, exploration / research, training, tax asset must be recognised only to the extent that it is start-up expenses, reorganisation costs, etc.). probable that there will be future taxable profits against which the deferred tax assets can be used. Deferred tax assets and Tangible assets liabilities cannot be discounted and must be measured on the Tangible assets can be revalued. The respective revaluations basis of tax rates that are expected to be applied at the time must be based on fair value, with tax-based revaluations not the differences that gave rise to these assets and liabilities are being accepted. When an item of tangible fixed assets is reversed. revalued, the entire class of which it forms part must also be revalued. Transition At the transition date, the balances of the principal differences The depreciation method must reflect the flow of benefits between the IFRS and the PCSB must be disclosed in retained generated for the company. Depreciation must take into earnings so as not to influence earnings for the year. account the asset’s residual value and its expected useful life (these parameters must be reviewed periodically).
Employee benefits The actuarial assumptions (demographic and financial) must be founded on market expectations at balance sheet date. In the evaluation of obligations, the actuarial assumptions must be mutually compatible and include as demographic variables updated mortality tables, rotation and disability rates, normal retirement age and medical care costs. The discount rate must be determined based on market rates for low-risk bonds with a similar maturity period as that for the settlement of the liabilities.
Report | Financial review 125 IMPLEMENTATION OF THE IFRS AT THE BPI GROUP
The BPI Group set up a working group midway through 2003 Analysis of existing IT processes and applications for to identify and assess the general differences between the accounting supporting in accordance with the IFRS Bank of Portugal’s accounting principles and those under the
IFRS. Definition of the implementation dates of the necessary principal alterations Subsequently, the analysis has been extended to include
ascertaining the impact on administrative and business Identification of the training needs of the different user processes. To this end more specialised working groups have groups been created with the aim of the IFRS’s operational
implementation in the respective areas. Quantification of the principal repercussions by entity and business area The diagnosis has involved analysis of the following aspects: The redefinition of the accounting policies manual will follow
Identification of the principal areas and operations affected the testing phase for the execution of the alterations. The Bank at each one of the Group’s entities envisages completing its transition to the IFRS with the preparation of the pro forma financial statements at 31
Classifying differences according to their importance and December 2004. establishing priorities
126 Banco BPI | Annual Report 2003 Risk management
RISK MANAGEMENT
Risk management at the BPI Group is based on the Exposure to this risk is evaluated using different complementary permanent identification and analysis of exposure to methods (expert system, ratings, scorings, filters, others). different risks – counterparty risk, country risk, market risks, liquidity risk, operating and legal risks – and on the adoption After an evaluation of exposure, specific approval for credit of strategies aimed at maximising profitability within operations follows the principles and procedures laid down in predefined and duly supervised limits. Management is the Credit Regulations. For each one of the different complemented a posteriori by analysis of performance divisions involved, the relevant hierarchical levels for the indicators. approval of credit, according to their characteristics, have been defined with the object of decentralising decisions and, therefore, ensuring processing speed and efficacy. Operations
BASLE II must fall within the pre-determined limits and must conform In 2003 and endeavouring to follow the best practices to the desired levels of return on the capital employed. envisaged in the regulatory project known as “Basle II”,
a routine review was conducted of consumer credit and The approval of credit operations falls within various credit card filters and scorings; a new scoring system was strategies, including diversification by geographic area, created for cards with the object of analysing card-renewal sector, counterparty and maturity; the use of guarantees / processes; a plan was devised for the use of risk indicators collateral and margins; periodic payment / repayment and commercial variables with the aim of defining all the relationship variables with card Customers (approval, schemes; legal preference clauses of the ISDA – pricing, overlines,…); a non-empirical scoring system was International Swaps and Derivatives Association – and applied to small businesses so as to complement the guarantees CSA – Credit Support Annex – in derivatives; expert system; an empirical rating system was generated credit derivates or settlement clauses. for companies (to replace the existing non-empirical system), in parallel with work aimed at systematising the Prescribed counterparty, market, maturity, product or variables to be used by the model’s complementary expert currency limits are adhered to taking into account the degree system; furthermore, improvements were made to the data base for motor car finance, home and small business loans of risk, the Customer’s borrowing capacity, relationship with and guarantees with a view to the future introduction of the Bank (including past experience relating to the use of empirical ratings and scorings in all segments of activity limits and Customer profitability), as well as BPI’s own size. as a complement to the current expert system and filters.
Subsequently, the Bank maintains constant vigilance over the evolution of its exposure (including resorting to a warning CREDIT RISK system in the case of companies) and the results and Management process profitability indices achieved vis-à-vis the risks assumed. Credit risk associated with the possibility of actual default by Moreover, problematic credit situations, provisioning cover a counterparty (or with the change in the economic value of indices, write-offs and recoveries are analysed every month. a given instrument or portfolio stemming from a deterioration The alert signalling non-performing loans is available on-line in the risk quality of a counterparty) constitutes the primary via the internal network for the information of the Bank’s risk factor inherent in the BPI Group’s business spectrum. managers.
Report | Risk management 127 CREDIT RISKS DIVISION nevertheless continue to play an important role in this The Credit Risks Division completed its first year of activity evaluation, bearing in mind that the Credit Risks Division only in 2003. analyses credit proposals that have received a favourable report from these divisions. On the other hand, the Commercial The implementation of the Credit Risks Division was aimed at Divisions are responsible for providing important qualitative introducing greater specialisation and independence into the information, mainly about shareholders and the managers of analysis of credit risk, thereby contributing to BPI’s corporate Customers. In addition, the commercial divisions approximation to the global objectives of the Basle II participate in the Credit Councils. Committee’s recommendations concerning the assessment and monitoring of credit risk. The commercial divisions The Risks Division is composed of 3 areas:
Credit Risks Division
Loan concession Monitoring Recovery
Responsible for loan concession analysis Responsible for the prevention of default Responsible for recovery of non-performing and decisions, through and electronic situations through the permanent oversight loans outstanding for more than 60 days, workflow process between the Commercial of the loan portfolio, and for follow-up of through specialised managers, backed by Divisions, the Credit Risks Division and the preventive and recovery actions in strong legal support. Operational Divisions. coordination with the commercial divisions, in cases of default for up to 60 days.
Figure 6
In its function of monitoring exposure limits, the Credit Risks Customers, generating complementary information to data Division is backed by a system of alerts which classify supplied by the Commercial Division and lending its support Customers into monitoring grades. This system permits the for the action to be followed in credit risk management. detection of alterations in the risk profile of Corporate Banking
An estimate is also made of the actual (or near actual) losses The economic provisions are object of a monthly assessment arising from default (named “economic provisions”) in such by the Executive Commission of the Board of Directors a way as to assess the adequacy of accounting provisions. (Executive Commission for Credit Risks) and analysed half- -yearly by the external auditors. These reports are also regularly reviewed by Internal Control Committee.
128 Banco BPI | Annual Report 2003 Functioning as agents controlling this entire management Risks, the Risk Control and Analysis Advisory Unit, the process, besides the Board of Directors, are the Internal internal and external auditors and the Bank of Portugal. Control Committee and the Executive Commission for Credit
PROCEDURES ADOPTED IN RELATION TO NON-PERFORMING CORPORATE LOANS
Up until 30 days The unpaid loan is classified as “loans in arrears”. The outstanding interest is reversed and interest ceases to be accrued.
Maturity 30 days 60 days
On maturity and up to 30th day After 30th day and up to 60th day After 60 days The commercial divisions are The Credit Risks Divisions – Monitoring The loan becomes the responsibility of responsible for recovery. Area analyses the situation in liaison with the Credit Risk Division’s Recovery Area, the commercial divisions with a view which submits to the Loans Committee a to recovery. proposed rescheduling or legal action (execution) plan. Figure 7
Evaluation of credit risk exposure Companies, institutions, specialised finance Credit operations involving companies, institutional Clients or potential loss in the event of default (including in and project finance are evaluated by specialist analysts. particular the analysis of collateral).
BPI also uses an internal rating system for companies, with According to the method for assessing risks and loan five grades for evaluating loans, guarantees and securities of approvals, the portfolio’s average risk is 48.4 – grade A, medium-sized and large companies. The classification grade which compares with 46.1 in 2002. is determined on the basis of economic and financial ratios, as well as indicators that take into account past experience, Loans, securities and guarantees portfolio of companies and institutionals commercial concept, incidents and risks associated with the Breakdown of exposure by classes of risk (internal rating) market / sector in which the company operates. Classes of risk 2001 2002 2003 AAA (<10) 12.6% 17.7% 17.0% AA (10-30) 10.7% 7.3% 5.6% The Credit Risks Division or, in the final instance, the A (30-50) 37.1% 23.2% 20.5% Executive Committee for Credit Risks, complement this B (50-70) 34.1% 38.6% 42.7% information on the probability of default with a qualitative C (70-100) 5.5% 13.2% 14.1% Total 100% 100% 100% analysis of the company’s strategy and management (which Average points 43.1 46.1 48.4 results in a possible overrule of the calculated rating), and Table 65 with an analysis of the information concerning the expected
Report | Risk management 129 These counterparty risk evaluation systems are The analysis of counterparty risk in the small business complemented by others, in particular, by the identification segment is conducted by the so-called expert system of major risks (concentration of exposure in a counterparty or involving, besides the analysis of the required guarantee / Group) and by the calculation of capital at risk, in collateral, a subjective opinion concerning the probability of accordance with the valuation enshrined in the regulation default by the counterparty or the entity providing the governing the capital adequacy ratio or inspired from it. The guarantee. portfolio is also globally evaluated by the respective degree of geographical, sectorial and maturity diversification. Securities portfolio Turning to the respective securities portfolio, BPI resorts Individuals and small businesses primarily to information obtained from external rating In the individuals segment, there are different scoring reports. The investment portfolio is predominantly composed systems and Customer selection filters. In the case of loans of the securities of low credit-risk issuers. backed by specific guarantees (housing, motor car), the probable loss is extremely low considering the financing / Bond and fixed-interest securities’ investment portfolio1 Breakdown of exposure by rating classes (external rating) M.€ guarantee ratio. BPI prescribes a maximum limit of 90% for Rating 2002 % 2003 % home loan / mortgage security. Aaa 258.8 17.7 133.7 7.5 Aa 676.5 46.3 620.9 34.9 As concerns other loans to individuals, Customer selection is A 195.3 13.4 367.8 20.6 centred above all on the assessment of default probabilities Baa 83.5 5.7 485.4 27.3 by recourse to scoring or the expert system, while credit is Other / Not rated (NR) 91.3 6.2 41.0 2.3 Commercial paper (NR)2 157 10.7 131.3 7.4 granted within predefined limits. In order to reduce the Total 1 462.4 100.0 1 780.1 100.0 probability of default, credit protection insurance is required 1) Includes preference shares which are recorded in the equities portfolio. Table 66 (with unemployment and hospitalisation cover) for Crédito 2) Non-rated commercial paper is guaranteed by credit institutions. Pessoal BPI (BPI Personal Loans). Overall Customer acceptance or rejection indices are associated with the desired minimum profitability levels taking into account the attendant risks.
Corporate and institutionals loan portfolio in 2003 Bonds investment portfolio in 2003 Breakdown by risk class (internal rating) Breakdown by risk class (external rating) 27.3% 42.7% 14.1% 20.6% 9.7% AAA, AA AAA, AA A A B Baa C Other / not rated 20.5% 22.6% 42.4% Chart 76 Chart 77
130 Banco BPI | Annual Report 2003 Derivate operations Default levels, provisioning and recovery Given the specific manner in which they are valued, credit Internal reorganisation work – the main highlights of which risk stemming from derivative operations are accorded were the role played by the Credit Risks Division, the choice special treatment. This has as its base the concept of the of exposure profiles using the aforementioned evaluation substitution value, which is estimated daily by the Risk methods, and the portfolios’ reduced average ageing (fruit of Control and Analysis Advisory Unit. the growth in lending) – resulted in the portfolio recording good performance indicators and, in particular, the minimal In order to mitigate derivatives credit risk, besides resorting default levels. to contracts containing clauses which permit the setting off of obligations in the event of default (even in the event of At the end of 2003, loans to Customers and credit insolvency), the Group has entered into credit-risk limitation institutions and securities in arrears (for more than 90 days) agreements with its most important counterparties in these totalled EUR 295.2 million, representing 1.3% of the markets. These agreements, which entail the receipt (and aggregate of these assets, while the respective provisioning payment) of collateral amounts for hedging risks between cover stood at 135%. counterparties, permitted a reduction in the substitution value of the derivatives portfolio of some EUR 178.4 million Of this total of defaulting situations, non-performing loans to at the end of 2003. credit institutions, portfolio securities and derivatives (net of the respective provisions) are insignificant: Current credit risk Substitution value of derivatives by type of counterparty M.€ Arrear loans to credit institutions amounting to EUR 83.0 2002% 2003 %
BPI Group 33.3 15.8 22.7 20.8 million are provided for to the extent of 99.9%. This loan Unit trust / pension funds 0.0 0.0 0.0 0.0 refers to credit advanced to a central bank and has its Companies 7.7 3.6 7.2 6.6 origin in the balance sheets of the commercial banks Individuals 6.3 3.0 8.8 8.1 acquired by the Group in 1991 and 1996; Banks 164.1 77.6 70.1 64.5
Total 211.3 100 108.9 100 Securities and interest in arrears totalled EUR 0.2 million, Notes: The total substitution value is the sum of the substitution values Table 67 of the counterparties, when positive. It does not include options inserted which corresponded to 0.01% of the gross bond portfolio into bonds issued or bought. The substitution value incorporates the effect of the risk reduction that results from the set-off of credit and debit balances between and was fully covered by specific provisions for non- the same counterparties and agreements with counterparties, which serve as guarantee for compliance with obligations. -performing securities.
This form of evaluating exposure to counterparty risk is supplemented by the traditional regulatory approach and anticipates, to a certain extent, the best practices of the new Basle accord.
Report | Risk management 131 Customer loans in arrears for more 90 days at the end of On the other side, an amount of EUR 20.6 million in arrear 2003 totalled EUR 212 million, corresponding to 1.2% of loans and interest previously written off from assets was the gross loan portfolio and was 148% covered by provisions. recovered during the course of 2003, of which EUR 7.2 The ratio of defaulting loans (in accordance with the million referred to an old default situation which was the criterion laid down by Bank of Portugal circular 99 / 2003) object of a court decision (not subject to appeal) in favour of was 1.3% and the respective provisioning situated at 134%. the Bank in 2003. This ratio, besides loans in arrears for more than 90 days, includes doubtful loans treated as non-performing for Hence, the increase in non-performing loans in the year provisioning purposes, which in December 2003 amounted adjusted for write-offs and recoveries, amounted to 0.31% of to EUR 22.2 million. the performing loan portfolio at the beginning of the year, which compares very favourably with the 0.63% registered in In 2003, the increase in Customer loans in arrears for more 2002. than 90 days (adjusted for write-offs) totalled EUR 70.9 million, which was equivalent to 0.43% of the performing It is worth pointing out that at 31 December 2003, the loan portfolio at the beginning of the year and represented a balance on restructured loans was EUR 37.1 million which very significant reduction relative to the 0.73% registered represents an increase of EUR 13.9 million when compared in 2002. with the corresponding figure at the close of 2002. This increase was equivalent to 0.08% of the performing loan portfolio at the beginning of the year.
Ratio of loans to Customers in Provisioning cover of loans to Annual net additions in loans in arrears1 arrears Customers in arrears As % of performing loan portfolio at beginning of the year
% % % 4 240 2.0 210 194 1.5 1.33 1.34
3 180 157 153 1.0 1.14 0.83 0.53 0.71 170 148 1.04 0.54 160 0.39 0.37 0.5 0.29 0.29 0.29 136 0.54 0.61 2 120 130 132 0.37 0.12 1.7 0.15 0.13 0.24 1.5 0.0 0.18 0.15 1.3 -0.05 1.1 -0.08 1.4 1.1 1.3 -0.5 1 1.2 60 9293 94 95 96 97 98 99 00 01 02 03 1.0 0.9
0 0 99 00 0102 03 99 00 01 02 03
Loans in arrears for more than Loans in arrears for more than Annual variation in loans in arrears, adjusted by write-offs 30 days 30 days Annual variation in loans in arrears, adjusted by write-offs, less recovery Loans in arrears for more than Loans in arrears for more than of loans in arrears written-off 90 days 90 days
Chart 78 Chart 79 1) Loans in arrears for more than 30 days. Chart 80
132 Banco BPI | Annual Report 2003 Loans in arrears for more than 90 days Amounts expressed in millions of euros 1999 2000 2001 2002 2003
Customer loans portfolio at the end of the year (gross) 9 582.3 13 494.4 15 471.0 16 615.2 17 783.0 Loans in arrears for more than 90 days Loans in arrears for more than 90 days at the beginning of the year 136.4 138.8 135.8 133.2 216.3 Net increase in arrear loans (adjusted for write-offs) 21.5 13.9 17.2 111.5 70.9 Write-offs (19.1) (16.9) (19.7) (28.5) (75.2)
Loans in arrears for more than 90 days at the end of the year 138.8 135.8 133.2 216.3 212.0 Doubtful loans1 ----22.2 Ratio of arrear and doubtful loans Loans in arrears for more than 90 days as a percentage of total loans 1.4% 1.0% 0.9% 1.3% 1.2% Loans in arrears for more than 90 days and doubtful loans1 as a percentage of total loans ----1.3%
Recovery of loans in arrears previously written-off 25.6 18.7 18.9 14.7 20.6 Increase in arrear loans as a % of the performing loans portfolio at the beginning of the year Increase in arrear loans adjusted for write-offs 0.29% 0.15% 0.13% 0.73% 0.43% Increase in arrear loans adjusted for write-offs and deducted of recovery of in arrears written-off -0.05% -0.05% -0.01% 0.63% 0.31%
Table 68
Provisions Amounts expressed in millions of euros 1999 2000 2001 2002 2003
Total loan provisions Total loan provisions at the beginning of the year 192.3 218.3 263.7 279.8 331.0 Increases (net of reversals) Specific for arrear loans 25.4 18.4 17.0 57.4 67.6 Specific for doubtful loans (1.5) (1.6) 2.2 1.1 12.5 Country risk 0.2 1.8 (2.1) (1.6) (0.4) Reversals of general provisions (which were utilised to increase specific provisions) ----(27.2) General loan provisions 20.9 45.2 21.1 7.5 9.7 Transfers, currency revaluations and acquisition of credit from the EFTA Fund 0.1 (1.5) (2.4) 15.1 (3.4) Write-offs (19.1) (16.9) (19.7) (28.5) (75.2)
Total loan provisions at the end of the year 218.3 263.7 279.8 331.0 314.6 Provisioning cover For loans in arrears for more than 90 days 157.3% 194.2% 210.0% 153.0% 148.4% For loans in arrears for more than 90 days and for doubtful loans1 ----134.3%
1) Doubtful loans treated as being in arrears for purposes of provisioning. Table 69
At the end of 2003, when loans in arrears for more than 30 days and doubtful loans treated as non-performing for 30 days are taken into account, the ratio of arrear loans was provisioning purposes, the ratio was situated at 1.5% and situated at 1.3% and the level of provisioning cover stood at the respective provisioning cover at 120%. 132%. When considering loans in arrears for more than
Report | Risk management 133 Loans in arrears for more than 30 days and provisions Amounts expressed in millions of euro 2002 2003
Customer loans portfolio (gross) 16 615.2 17 783.0 Doubtful loans1 - 22.2 Loans in arrears for more than 30 days 254.0 239.2 Total loan provisions 331.0 314.6
Ratio of arrear and doubtful loans Loans in arrears for more than 30 days as a percentage of total loans 1.5% 1.3% Loans in arrears for more than 30 days and doubtful loans1 as a percentage of total loans - 1.5%
Provisioning cover For loans in arrears for more than 30 days 130.3% 131.5% For loans in arrears for more than 30 days and for doubtful loans1 - 120.4%
1) Doubtful loans treated as being in arrears for purposes of provisioning. Table 70
The following table presents the ratios of loans in arrears for more than 30 days by market segment, as well as each segment’s contribution to the gross loan portfolio.
Loans in arrears for more than 30 days and provisions by market segment 2002 2003 Loans portfolio (gross) Ratio of Loans portfolio (gross) Ratio of as % of the consolidated loans in as % of the consolidated loans in loan portfolio arrears loan portfolio arrears Domestic activity Wholesale banking 13% 2.0% 9% 2.0% Large companies 9% 1.3% 8% 0.3% Medium-sized companies 14% 2.9% 13% 2.4% Project finance 2% 0.0% 4% 0.0% Institutional Banking 4% 0.0% 4% 0.0% Corporate and Institutional Banking 42% 1.9% 39% 1.3% Mortgage loans 39% 0.7% 43% 0.9% Loans to individuals – other purposes 5% 2.3% 5% 2.7% Loans to small businesses 9% 2.5% 9% 2.3% Loans to individuals and small businesses 54% 1.1% 57% 1.3% Specialised loans – leasing and long-term rental1 2% 3.1% 2% 2.8% Other 2% 2.8% 2% 3.0%
Domestic activity 100% 1.5% 99% 1.3% International activity2 0.5% 1.3% 1% 1.2% Total 100% 1.5% 100% 1.3%
1) Commercial loans not allocated to segments. Table 71 2) The merger by incorporation of Banco Fomento Moçambique into Banco Comercial e de Investimentos took place in December 2003, as a result of which the BPI Group’s stake in the last-mentioned institution now stands at 30%, while its accounts are now equity-accounted by the Group. For analysis purposes, the ratio of non-performing loans in 2002 associated with international activity does not include loans advanced by Banco Fomento Moçambique. If Banco Fomento’s loan portfolio is taken into account, the non-performing loan ratio in 2002 in international activity would have been situated at 2.3%.
134 Banco BPI | Annual Report 2003 Amounts set aside for specific provisions for non-performing In domestic activity, Customer loans in arrears for less than loans in domestic activity totalled EUR 65.3 million (net of one year totalled EUR 96.5 million, while the respective reversals) in 2003. Of this amount, EUR 24.0 million was provisioning cover was situated at 25% at the close of 2003. earmarked to cover loans which entered into default during 2003 in domestic activity, while the balance was reserved Loans in arrears for more than one year represented 59% of for the provisioning of loans in arrears for more than one total non-performing loans and were covered by specific year. provisions to the extent of 66%.
Domestic activity – age analysis of Customer loans in arrears and specific provisioning cover (at 31 December 2003) Amounts expressed in millions of euro
< 1 year 1-2 years 2-3 years > 3 years Age analysis of arrear loans (classes (classes Total by classes1 <3 months 3-6 months 6-9 months 9-12 months 12-18 months 18-24 months (class I) (class II) (class III) (class IV) (class V and VI) (class VII) VIII to IX) X to XII)
Home loans Loans in arrears 1.5 1.6 3.1 13.1 12.6 9.5 10.7 7.6 59.7 Level of provisioning 0.5% 10.0% 25.0% 25.0% 34.0% 50.0% 49.5% 63.8% 39.2%
Other loans with asset-backed security Loans in arrears 2.4 2.1 1.5 3.7 7.6 15.7 22.1 9.3 64.3 Level of provisioning 0.8% 9.8% 25.0% 25.0% 49.7% 52.5% 50.0% 85.9% 50.6%
Loans with personal guarantees Loans in arrears 5.0 4.4 3.4 4.5 8.1 1.5 1.3 1.0 29.2 Level of provisioning 1.0% 10.0% 25.0% 25.0% 63.8% 100.0% 100.0% 100.0% 39.2%
Unsecured loans Loans in arrears 18.1 11.3 10.5 10.5 11.7 8.8 5.9 7.8 84.5 Level of provisioning 1.0% 24.0% 50.0% 73.4% 98.8% 98.2% 100.0% 103.5% 59.2%
Total loans in arrears Loans in arrears 26.9 19.3 18.5 31.8 40.0 35.4 40.0 25.7 237.6 Level of provisioning 0.9% 18.1% 39.2% 40.9% 62.0% 65.2% 59.0% 85.2% 49.4%
1) Classes of arrear loans by age analysis, in accordance with Bank of Portugal Notice 8 / 2003. Table 72
Report | Risk management 135 REGIME GOVERNING LOAN PROVISIONING Types of provisions In Portugal, the regime which regulates credit risk provisioning These alterations became effective in February 2003 for new (Bank of Portugal Notices 3 / 1995 and 8 / 2003) prescribes loans granted, while the adjustment to the cover for pre- three types of loan provisions: -existing loan portfolio came into force in August 2003.
Specific provisions for loans and interest in arrears – destined Present regulatory framework to cover loans (capital and interest) in arrears which are in Provisions for specific non-performing loans default for more than 30 days; Loans in default for more than 30 days are deemed to be loans in arrears. After this period, is suspended the recording of
Specific provisions for doubtful loans – earmarked to cover interest as income on the capital registered as loans in arrears, the risk on loans which are not yet in arrears in a credit while the interest accrued since the last paid instalment of operation or on the total loans advanced to a single Customer interest is annulled. in respect of whom there are overdue instalments; As regards mortgage loans, BPI adopts a policy that leads to
Provisions for general credit risks – are constituted as a the more rapid recognition of non-performing loans. Given that percentage of the total performing loan and guarantees BPI institutes legal action for the recovery of the loan 5 to 6 portfolios and in respect of which there is no identified risk months after the first instalment falls into arrears. BPI of default; accounts for interest until the date on which it initiates legal action. At that point, the entire loan (capital and interest), and Alterations to the provisioning regime not just the instalments in default, is fully recognised as loans The alterations to the provisioning regime for loans in arrears in arrears. (Bank of Portugal Notice 8 / 2003) came into force in 2003. Provisioning for loans in arrears is done on a progressive The most salient aspects of these changes were: manner, in accordance with the minimum cover coefficients laid down in Bank of Portugal Notice 8 / 2003, which sets out
The adoption of more stringent criteria for the cover of non- a differentiated treatment depending on the purpose of the -performing loans, in general by raising provisioning loan, nature of the securities and age history of the default. coefficients and advancing the date for full cover, and the specification of new classes of credit which, according to their purpose and the nature of the associated guarantee, now have a differentiated treatment;
The reduction in the provisioning coefficient for general credit risks on home-mortgage loans, from 1% to 0.5%. The resulting excess provisions must mandatorily be allocated to the constitution or reinforcement of provisions for specific credit risks.
136 Banco BPI | Annual Report 2003 Minimum provisioning coefficients (Notice 8/2003) Figures in percentage (%) Period of Classes Loan purposes and nature of the securities loan in Unsecured Secured loans default loans With With real guarantee personal Non mortgage Mortgage loans guarantee Loans for Housing loans other ≥ purposes Loan-to-value 75% Loan-to-value < 75%
From 1 to 3 months I 1 1 1 1 0.5 0.5
>3 to ≤6 months II 25 10 10 10 10 10
>6 to ≤9 months III 50 25 25 25 25 25
>9 to ≤12 months IV 75
>12 to ≤15 months V 100 50 50 50
>15 to ≤18 months VI 75 50
>18 to ≤24 months VII 100 75 75 50
>24 to ≤30 months VIII 75
>30 to ≤36 months IX 100 100
>36 to ≤48 months X 75
>48 to ≤60 months XI 100
>60 months XII 100 Figure 8
Specific provisions for doubtful loans Also classified as doubtful loans are the total instalments not The instalments not yet due in a credit operation are classified yet due by a Customer when such person has instalments in as doubtful loans when: default (capital and interest) which exceed 25% of the total capital in debt (plus interest due).
There are instalments in default (capital and interest) which exceed 25% of the outstanding capital (plus interest due) or; In this situation and for provisioning purposes, half of the arrear loan provisioning coefficients is applied to the total
There are instalments in default for more than 6 months on instalments not yet due by this Customer, while the debt’s age operations with a maturity of less than 5 years, for more than is determined as from the date on which the overdue 12 months on operations with a maturity of 5 to 10 years, or instalments exceed 25% of the outstanding capital. for more than 24 months in operations with a maturity of more than 10 years. Provisions for general credit risks Provisions for general credit risks are constituted for the In the two above-mentioned situations and for provisioning portfolio of performing loans and guarantees. These correspond purposes, the instalments not yet due are treated as loans in to 0.5% of loans secured by a mortgage over real estate or arrears, in other words, the same provisioning coefficients are real-estate leasing operations (in both cases when the property applied as those to loans in arrears, whereby they are is destined for the borrower’s residence), 1.5% of consumer attributed the identical debt ageing as the first instalment in credit and unspecified loans to individuals, and 1% for the default. remainder of loans granted. In this way, the loan portfolio’s expansion is responsible for a higher level of provisioning in phases when the growth in lending is more pronounced.
Report | Risk management 137 COUNTRY RISK Country risk is very similar in terms of the respective effects to countries considered are large-scale emerging markets which counterparty risk and is associated with the changes or specific embrace market economy principles, are open to international disturbances of a political, economic or financial nature in the trade and are of strategic importance within the framework of places where the counterparties operate (or, more rarely, in a the West’s politics. third country where the business takes place), which impede full compliance with the contract, irrespective of the In addition, the operations defined as eligible are short-term counterparties’ will or capacity. The “country-risk” designation external trade finance, loans to certain multilateral banks, is also used to classify the counterparty risk involved in loans to medium-term operations with political risk cover or those state entities, given the similarity between the analysis methods which, due to their structuring, are not subject to transfer risk. for county risk and those for a state’s counterparty risk (sovereign risk). The appreciable improvement in the economic conditions of emerging countries is the prime factor behind the International Country-risk evaluation is carried out by the Bank’s Division’s growing activity, at the same time as Trade Finance International Division, which resorts to published external operations with Turkey and Brazil were resumed. Exposure net ratings, and external and in-house studies. The Board of of guarantees totalled EUR 313.8 million, against EUR 218.5 Directors Executive Committee approves the list of countries in million in 2002. respect of which country-risk exposure is authorised. Eligible
Country-risk exposure (at 31 December 2003) Amounts expressed in millions of euro Exposure net Exposure not subject to Exposure Provisions Exposure Country of provisions (short-term subject to net of guarantees1 trade finance)2 provisions provisions Angola 82.6 – 82.6 82.6 0 Brazil 173.9 166.7 7.3 3.4 3.8 Morocco 1.6 – 1.6 0.2 1.4 Turkey 37.9 37.9 – – – Other3 17.8 17.6 0.2 0.1 0.1
Total 313.8 222.2 91.6 86.3 5.4 1) Net of residents’ guarantees, namely, the COSEC (National Export Credit Agency), exporters or deposits. Table 73 2) Short-term external financing operations, operations with multilateral development banks or those covered by political-risk insurance are not subject to country-risk provisions. 3) Algeria, Panama, Cape Verde and Mozambique
138 Banco BPI | Annual Report 2003 Of the country-risk exposure (net of guarantees), roughly Country-risk exposure, net of 71% is exempt from provisioning requirements under the provisions M.€ regulations by virtue of the fact that they represent short- 28 -term external trade financing operations, operations concluded with multilateral development banks, or are 21.1 21 covered by political-risk insurance. The remaining exposure, in the amount of EUR 91.6 million, pursuant to Bank of
Portugal regulations governing country-risk provisioning and 14 internal prudential measures, has been amply provided for. 10.5 The net exposure, amounting to EUR 5.4 million, 6.6 7 5.7 corresponds to a minor percentage (0.4%) of the Group’s 5.4 shareholders’ equity. 0 99 00 01 02 03 Besides this exposure, the Bank is exposed to direct country Chart 81 risk through its trading activity and, above all, via its international participating interests.
At 31 December 2003, the exposure associated with the international participating interests totalled EUR 63.8 million, which corresponded to the book value of Banco de Fomento Angola’s shareholders’ equity and the balance sheet value of the 30% holding in Banco Comercial e de
Investimentos (Mozambique), and represented 5.2% of the Value at Risk (VaR)
Group’s shareholders’ equity. M.€ 28
MARKET RISKS 23.5 20.8 Market or price risk (interest rates, foreign exchange rates, 21 20.7 18.3 equity prices, commodity prices, other) is defined as the possibility of incurring losses due to unexpected variations in 14 the price of instruments or operations.
6.6 The assessment of treasury positions (short term) and 7 structural risk positions relating to interest or foreign Maximum VaR Monthly average VaR exchange rates (long term) is based on gap schedules 0 99 00 01 02 03 (currency gaps, maturity gaps, duration gaps). Chart 82 To complement this evaluation process, and especially in the case of assessing exposure in trading operations, the Risk
Report | Risk management 139 Control and Analysis Advisory Unit computes on a daily basis controlled using specific models. The information produced the VaR – Value at Risk – in accordance with standardised by the Risk Evaluation and Control System is available assumptions, in general, forming part of the BIS’s set of on-line to authorised users. recommendations. The exposure arising from options is
Overall market risk1 Amounts expressed in millions of euro 1st quarter 2nd quarter 3rd quarter 4th quarter 2003
VaR (monthly average) 5.3 4.7 16 13.4 9.8 Interest rate risk 5.5 4.5 16.2 12.8 9.7 Currency risk 1.5 0.6 1.2 2.1 1.4 Equities risk 1.7 2.1 2.3 1.7 1.9 Commodities 0.0 0.0 0.0 0.0 0.0 VaR (maximum) 17.2 10.0 20.8 15.7 20.8
1) Includes trading and banking book. Maximum potential loss with a 99% confidence level resulting from an adverse movement in prices, Table 74 indices and interest rates over a period of two weeks, taking into consideration in the calculation of the overall risk the effect of the correlation of returns. A normal distribution of returns is assumed.
At the close of 2003,the VaR associated specifically with The long-term structural positions (interest rate or currency trading operations represented EUR 1.9 million, while during risk) are managed in conformity with directives laid down by the course of the year it never exceeded EUR 3 million. The the Market Risks Executive Committee. The profits trading positions are managed independently by the traders associated with the management of the structural interest- and maintained within the exposure limits fixed and -rate position amounted to EUR 13.5 million in 2003. periodically reviewed for each market or product. There are varying exposure limits, including overall VaR limits fixed by As concerns its structural position resulting from the the Market Risks Executive Committee, that are investments portfolio, its market risk is not easily measured subsequently distributed autonomously amongst the various by recourse to traditional methods such as the VaR, given books by the divisions involved in trading activity. the investment’s time horizon, or its lack of a quoted price Furthermore, stop-loss limits are also laid down. on the equities market. This portfolio’s performance and the relevant provisions are analysed in the financial review The management of treasury positions has been delegated to chapter. the Financial Division, within the limits defined by the Market Risks Executive Committee.
140 Banco BPI | Annual Report 2003 LIQUIDITY RISK Liquidity risk is monitored in its two facets: i) from the In 2003, of particular note was the continued adherence to standpoint of the tradability of the different assets; ii) from a policy of selective easing in lending expansion, in a global perspective, whereby liquidity risk is defined consonance with the slower growth in on-balance sheet according to the (in)ability to keep pace with the asset’s Customer resources (+0.7%%) and the reinforcement of growth and to satisfy treasury needs without incurring longer-term funding components. In this domain, EUR abnormal losses. 2 596 million were raised through private and public issues, part of them in the ambit of an MTN programme. Thus, the From the standpoint of the different assets, the various total of outstanding medium and long-term debt operations managers keep a constant watch over the transaction levels attained a global amount of EUR 5 984 million. At the end of the various instruments according to a series of indicators of 2003, loans to Customers (gross) represented 87% of the (BPI’s market share, number of days to unwind positions, more stable third-party resources (medium and long term size and volatility of spreads, etc), duly confined within the resources from credit institutions, Customer resources, debt operating limits set for each market. securities and subordinated debt placed on the market).
At global level, exposure assessment is conducted according In the domain of interbank credit, the chief aim was to a liquidity schedule, that permits the timely identification ensuring the greater diversification of counterparties (more of gaps and their dynamic hedging, and also through stress than 280 counterparties occasionally and recently activated) test maps (monitored by Bank of Portugal). Moreover, the with the object of guaranteeing more intense and diversified indicators relating to funding diversification by continuous financing lines. counterparties, maturities and financial markets, are analysed. Managing this risk is the responsibility of the Group’s Market Risks Executive Committee and the Financial Division.
Report | Risk management 141 OPERATING RISKS Operating risks are defined as possible unexpected losses There is a “Business continuity plan”, anchored to the arising from human failure, shortcomings in internal control contingency programmes for the most crucial central procedures and failures in the information systems or information systems. In the case of necessity caused by external causes. The definition excludes strategic errors and equipment breakdown or by a major incident, it is possible reputation risks. to recover these systems on site or at an alternative location after a period of time that varies according to the type of The responsibilities in the area of operating risks belong to risk. Also guaranteed, even under extreme conditions, is all the Bank’s departments and, in particular, to the Risk minimum functioning under an exceptional situation. The Control and Analysis Advisory Unit (assessment of global same method applies in the case of the main exposure) and the Organisation Division (regulation of telecommunications equipment. The voice and data service processes). at the BPI Group’s main buildings is guaranteed through the recourse to alternative equipment, in accordance with formal The BPI Group also places special emphasis on the prior disaster-recovery processes. The BPI Group has also identification of critical points of operational dependency. In identified alternative procedures for each one of its most 2003, areas of potential operating problems were identified critical operations. A database is on stand-by which in a systematic manner in all departments – a step also identifies all these procedures, thereby enabling these to be stimulated by the future introduction of regulation in this activated at any point in time. These disaster recovery domain (Basle II). The identification of these critical points schemes are tested and subjected to periodic reviews. is part of the management strategy for these risks. Finally, the BPI Group reviews annually its insurance policy In this arena, management is founded primarily on the cover, adjusting them to the operating requirements and training / quality of human resources and their proper market conditions, with the object of obtaining an organisation, focusing on issues such as the segregation of appropriate level of outside protection against risks. duties, the definition of responsibilities, procedures and supervision. This supervision is undertaken by two central units (one dedicated to the distribution channels and the other to the remaining structures), as well as by the work of the internal and external auditors and the central management of alerts.
142 Banco BPI | Annual Report 2003 LEGAL RISKS Legal risks are related to the unexpected losses associated with shortcomings in the legal situation applicable to contracts / positions to be established or any changes to this legal context.
Particular attention is paid in the sphere of legal risks to reviewing the legal situation and the identification of any regulatory discrepancy; to analysing the prospects of altering the legal framework and respective consequences; to clarifying the nature of contractual relations and their interpretation by counterparties; product analysis, their legal status, centralisation of communications with supervisory entities and the drawing up of the respective processes with these entities; and to the identification / proposal of the measures capable of minimising risks of litigation.
Report | Risk management 143 Rating
The BPI Group’s strategy, competitive position, solid Following the BPI Group’s restructuring at the end of 2002, financial base and capacity to generate earnings continued the rating agencies Moody’s, Standard & Poor’s and Fitch to merit high credit ratings from independent and reputable Ratings confirmed BPI’s rating classifications and entities – Fitch Ratings, Moody’s and Standard & Poor’s. maintained their outlook as “stable”, highlighting the benefits to be reaped from the much simpler structure, as The rating agencies highlight in broad terms the successful well as the potential for cost savings engendered by the growth strategy implemented by BPI, materialising in the reorganisation. acquisition of four banks – Banco Fonsecas & Burnay, Banco Borges & Irmão, Banco de Fomento e Exterior and Banco In November 2003, Moody's upgraded its “outlook” from Universo – and their correct integration. They also underline “stable” to “positive” for Banco BPI long term rating and the high quality of the Group’s assets and earnings. financial strength, underlining the preservation of the bank's profitability and asset quality. Throughout an adverse background in the last three years, of strong economic deceleration and increasing lending risk in the economy, BPI Group maintained its rating notations.
Rating classifications Latest report Long term Short term Outlook Date Action Banco BPI Moody's 21 Nov. 03 Hold A2 P-1 Positive Fitch Ratings 23 Oct. 03 Hold A+ F1 Stable Standard & Poor's 10 Feb. 04 Hold A- A-2 Stable
BPI Investimentos Fitch Ratings 23 Oct. 03 Hold A+ F1 Stable Standard & Poor's 10 Feb. 04 Hold A- A-2 Stable
Moody’s: A2 Bonds which are rated “A” possess very favourable attributes and are considered as superior-medium grade investments. Table 75 (the modifier 2 denotes a middle position in category A). Fitch Ratings: A+ High credit quality. A ratings denote a low expectation of credit risk. (the modifier + denotes a higher position within category A). Standard & Poor’s: A– An entity with an A rating possesses a strong capacity to meet its financial commitments. (the modifier – denotes a lower position in category A).
144 Banco BPI | Annual Report 2003 RATING REPORTS Moody’s, 21 November 2003 “London, 21 November 2003 – Moody's Investors Service changed to positive from stable the outlook on Banco BPI,S.A.'s A2 long- term ratings and the C+ financial strength rating. According to Moody's the outlook change reflects the bank's continuing solid profitability, as well as its good asset quality, despite the more difficult recent times for the Portuguese economy. It also takes into account the bank's success in maintaining its position within the increasingly competitive Portuguese market.”
Fitch Ratings, 23 October 2003 “Banco BPI's ratings reflect management's track record in delivering consistently good results, its sound asset quality, conservative risk profile and strong franchise in certain business areas. Since the launch of the BPI brand in mid-1998, management has developed a multi-channel approach and focused on business expansion, particularly in domestic retail banking.”
“The group’s ROE and ROA have held up well, despite the decline in net interest margin and its improved equity base, while relatively stable costs have had a positive effect on the group’s cost / income ratio, though this still remains higher than its peers’.”
“Portugal’s leading banks display sound asset quality ratios and BPIG continues to demonstrate the best ratios among its peer group.”
Standard & Poor’s, 10 February 2004 The ratings on Banco BPI S.A. (BPI) are supported by the bank's good positioning in Portugal, skilled management, good asset- quality track record, and adequate profitability.
The stable outlook assumes that the economic environment will continue to challenge BPI's performance in the short term – primarily asset quality and profitability-until the economy returns to a sound pace of growth. Nevertheless, Standard & Poor's expects any deterioration to be manageable. The outlook also assumes that management will maintain its policy of tightening costs to provide the bank with the necessary flexibility to operate in a still adverse environment. Solvency is expected to remain close to current levels, with shareholders contributing additional resources if needed, as in the past.
Report | Rating 145 BPI shares
Shareholder return on investment Liquidity Banco BPI shares registered a gain of 33.9% in 2003, In 2003 liquidity indicators remained at approximately the outstripping the market’s performance by an expressive margin. same levels as those registered in the previous year. BPI shares Indeed, the equities market posted a rise of 15.8% in Portugal1 generated a trading volume of EUR 602 million in 2003, and 13.7% in Europe2, while the European banking sector corresponding to a daily average turnover of EUR 2.4 million. recorded a gain of 21.6%3. The return on investment (ROI) in BPI shares – which takes into consideration the share’s stock Stock market capitalisation market appreciation and assumes the reinvestment of dividends The market value of the BPI Group, as measured in terms of its in new BPI shares – was situated at 38.5% in 2003. stock market capitalisation at 31 December 2003, amounted to EUR 2 219 million, 34% higher than in 2002. BPI was, at
Banco BPI shares and key indices performance1 the end of 2003, the ninth largest company with shares listed ∆% € on the Euronext – Lisbon, representing 4.5% of the market’s 40 3.05 Banco BPI global capitalisation. 30 DJ Europe STOXX Banks 2.83
20 2.62 Market multiples
10 2.40 The PER (price earnings ratio4) fluctuated between a minimum
0 2.18 of 9.1 and a maximum of 13.7 during the course of 2003, to PSI-20 Banco BPI shares’ price be fixed at 13.5 at the end of 2003. The price cash flow5 -10 1.96 indicator stood at 7.6 at the end of the year, while the price -20 1.74 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. book value86was 1.8.
1) BPI shares’ trend in relation to 31 December 2002. Chart 83 Inclusion in the Euronext 100 index Earnings per share Banco BPI shares were integrated into the Euronext 100 index Net profit per BPI share in 2003 was EUR 0.216 (EUR on 1 July 2003, and thus ceased to form part of the Next 150 0.192 in 2002). Net book value per share at the end of index. December 2003 was situated at EUR 1.61. The Euronext 100 index is the principal index of the pan- Dividends -European Euronext stock exchange which is composed of the The dividend proposed to the Shareholders’ General Meeting in largest 100 companies listed in Paris, Amsterdam, Brussels respect of 2003 is EUR 0.09 (9 cents of euro), attributable to and Lisbon. Its stock market capitalisation at the end of 2003 each one of the 760 000 000 shares representing the issued was EUR 1.3 thousand billion. share capital at 31 December 2003. The total amount to be distributed is EUR 68.4 million. Banco BPI’s promotion to the Euronext 100 index is directly related to the share’s very favourable performance in 2003 – both in absolute and relative terms.
1) Taking as reference the trend in the PSI-20 index. 2) Taking as reference the trend in the Dow Jones STOXX 600 index. 3) Taking as reference the trend in the Dow Jones Europe STOXX Bank index. 4) Price as multiple of net profit per share. 5) Price as multiple of cash flow after taxation per share. 6) Price as multiple of book value per share.
146 Banco BPI | Annual Report 2003 Share capital Banco BPI’s share capital is composed of 760 000 000 For its part, Banco Português de Investimento, S.A., – nominative and dematerialised (book-entry) ordinary shares, 100%-owned by Banco BPI – acquired on the stock exchange with a nominal value of one euro each. All the shares are 4 360 862 shares at an average price of EUR 2.37 euros (at a entitled to the full dividend relating to 2003 and following total cost of EUR 10 354 694), and sold 3 854 220 shares at years. The shares representing Banco BPI’s share capital are all an average price of EUR 2.35 euros (for a total amount of EUR quoted on the Euronext market. 9 074 147). In the over-the-counter market, and in the ambit of the share incentive scheme (RVA), it sold 558 304 shares at an average price of EUR 2.58 euros (for a total amount of EUR
OTHER USEFUL INFORMATION ABOUT BANCO BPI 1 443 005). These transactions corresponded to 1.2% of SHARES Banco BPI’s share capital, with 24% of the quantity traded Index weighting1 being earmarked to hedge positions in PSI-20 futures.
PSI-20: 7.625%; #6
Euronext 100: 0.171% At 31 December 2003, Banco BPI held 10 093 492 own Dow Jones STOXX 600: 0.029% shares, that is, 1.3% of share capital, reserved exclusively for Dow Jones Europe STOXX Bank: 0.142% the execution of the stock incentive and options scheme – RVA
Codes and Tickers – in force at the Group since 2001. Of this figure, 3 018 864
ISIN and Euronext code: PTBPI0AM004 shares are destined to provide cover for the 2001 series stock
Reuters: BPIN.IN options’ scheme, 6 834 817 shares for covering the 2002 Bloomberg: BPIN PL series stock options’ scheme and 239 811 shares for covering the shares awarded in 2001 under suspensive condition. For its 1) Figures at 31 December 2003. part, Banco Português de Investimento held 290 122 Banco BPI shares at 31 December 2003, or 0.04% of capital, all of Treasury stock which were held for hedging positions in PSI-20 futures. In 2003, Banco BPI acquired on the stock exchange 10 976 023 shares at an average price of EUR 2.41 (at a total The other subsidiaries over which Banco BPI exercises effective cost of EUR 26 399 179), and sold, also on the stock management control did not acquire or sell any BPI shares and, exchange, 1 581 809 shares at an average price of EUR 2.39 at the end of December 2003, did not hold any Banco BPI (for a total amount of EUR 3 777 649). Additionally, in the shares in their portfolios. over-the-counter market, it acquired 677 074 shares at an average price of EUR 2.61 (at a total cost of 1 766 422 euros) Other information and sold 1 406 459 shares at an average price of EUR 2.31 As mentioned in the chapter on Banco BPI shareholder (for a total amount of 3 248 427). These transactions structure, Banco BPI Employees' pension fund held corresponded to 1.9% of Banco BPI’s share capital and were 16 901 124 Banco BPI shares at 31 December 2003, or earmarked exclusively for the execution of the variable 2.2% of the Bank's capital. remuneration programme for Employees and directors (2001 and 2002 series) through the granting of shares and share options (Portuguese initials RVA).
Report | BPI shares 147 Principal Banco BPI share indicators Amounts expressed in euro and millions of euro 1999 2000 2001 2002 2003
Stock exchange price of Banco BPI shares1 (euro) Highest price 4.56 4.10 3.83 2.63 2.95 Average price 3.69 3.50 2.65 2.34 2.46 Lowest price 3.03 3.09 1.81 1.74 1.96 Closing price 3.86 3.18 2.15 2.18 2.92 Changes in price and key indices1 Variation in Banco BPI share price (0.1%) (17.6%) (32.3%) 1.5% 33.9% Variation in PSI-20 index 8.7% (13.0%) (24.7%) (25.6%) 15.8% Variation in Dow Jones STOXX 600 index 35.9% (5.2%) (17.0%) (32.5%) 13.7% Variation in Dow Jones Europe STOXX Bank index 18.5% 9.3% (9.5%) (26.8%) 21.6% BPI shareholder’s overall return (ROI) Shareholder’s overall return 2.5% (16.0%) (30.4%) 3.0% 38.5% BPI Group’s market value No. of shares at the end of the year (in millions) 565.02 645.6 645.6 760.0 760.0 Stock market capitalisation at the end of the year (M. euro) 2 390.0 2 156.4 1 459.1 1 656.8 2 219.2 Data per share (euro)3 Cash flow after taxation 0.319 0.445 0.397 0.355 0.384 Net profit 0.207 0.243 0.196 0.192 0.216 Dividend 0.094 0.093 0.086 0.083 0.090 Book value 1.050 1.370 1.338 1.538 1.615 Weighted average no. of shares (in millions) 603.8 626.3 679.0 728.3 760.0 Market valuation Price as a multiple of: Cash flow after taxation 12.1 7.1 5.4 6.1 7.6 Net profit (earnings) 18.7 13.1 10.9 11.3 13.5 Book value 3.7 2.3 1.6 1.4 1.8 Dividend yield 2.4% 2.4% 2.7% 3.9% 4.1% Earnings yield 5.4% 6.3% 6.2% 9.0% 9.9% Liquidity Annual trading volume (M. euro) 1 495.0 992.9 390.8 602.0 602.1 Share capital rotation 70.2% 45.2% 21.7% 36.7% 32.3% Daily average trading volume (M. euro) 6.0 4.1 1.6 2.4 2.4 Dividends Net profit (M. euro) 124.8 152.4 133.3 140.1 163.8 Distributed earnings (M. euro) 56.5 58.1 58.1 60.8 68.4 Pay-out ratio 45.3% 38.1% 43.6% 43.4% 41.7% Dividend per share (euro) 0.094 0.093 0.086 0.083 0.090 Dividend yield 2.4% 2.4% 2.7% 3.9% 4.1% 1) Source: Bloomberg. Table 76 2) In 1999, the share capital was increased from 77.9 million shares to 113 million shares, generating a cash inflow of EUR 125.4 million. Subsequently, a share stock split was carried out through the substitution of each existing share (with a nominal value of 5 euro each) by 5 new shares with a nominal value of 1 euro each. 3) Adjusted for capital increases and the redenomination and renominalisation of the share capital.
148 Banco BPI | Annual Report 2003 Shareholders
STRUCTURE AND PRINCIPAL SHAREHOLDERS
At 31 December 2003, Banco BPI’s capital was held by institutional investors and companies holding 89.5% of the 19 740 shareholders, of whom 19 222 were individuals capital. representing 10.5% of the capital, while 518 were
Distribution of Banco BPI’s share capital1 At 31 December 2003 Nationals Foreign2 Total
Type of shareholder No. of % No. of % No. of % shareholders shareholders shareholders Individuals 19 044 10.4% 178 0.1% 19 222 10.5% Pension funds 59 9.5% - - 59 9.5% Unit trust (mutual) funds 22 1.5% - - 22 1.5% Other institutionals3 240 49.9% 197 28.6% 437 78.5%
Total 19 365 71% 375 29% 19 740 100%
1) The distribution of Banco BPI’s capital is based on information received from the securities clearing house (Central de Valores Mobiliários), which reflects Table 77 the registration of EUR 759 872 510, or 99.99% of Banco BPI’s share capital (which is EUR 760 000 000). 2) The distribution amongst types of shareholders is as concerns foreigners merely indicative. BPI does not have information that permits it to identify the holders of shares registered in the name of foreign custodian banks. 3) Includes the direct holdings of BPI’s key institutional shareholders, companies’ holdings and shares in the name of custodian banks.
Shareholders owning more than 2% of Banco BPI’s capital At 31 December 2003 % of voting rights1 No. of shares held % of capital held Shareholder (according to Securities Code)
Itaú Group2, 3 122 323 944 16.1% 16.3% La Caixa Group2, 4 121 556 379 16.0% 16.2% Allianz Group5 67 210 462 8.8% 9.0% Totta Group6 58 050 996 7.6% 7.7% Qualified shareholding of Banco BPI7 28 337 206 3.7% 3.8% BCP Group8 25 801 971 3.4% 3.4% Arsopi9 22 400 622 2.9% 3.0% Violas – SGPS, S.A. 21 681 062 2.9% 2.9% The Chase Manhattan Bank10 20 804 597 2.7% 2.8% Espírito Santo Group11 17 207 241 2.2% 2.3%
Caixa Geral de Depósitos Group12 15 989 635 2.1% 2.1%
Note: shareholder positions recorded at 31 December 2003 at the securities clearing house (Central de Valores Mobiliários), based on the information received Table 78 from the Central de Valores Mobiliários. 1) Taking into consideration that as at 31 December 2003 the BPI Group had 9 432 932 own shares corresponding to 1.24% of Banco BPI’s share capital registered at the Central de Valores Mobiliários. 2) In terms of the company’s statutes, the exercise of voting rights is limited to 12.5%. 3) Through IPI – Itaúsa Portugal SGPS, S.A., 100% controlled. 4) Through Catalunya de Valores-SGPS, Unipessoal, Lda., 100% controlled. 5) Through the subsidiaries controlled by Reunione Adriática di Sicurtá S.p.A. (55%-held by Allianz AG): through RAS International, N.V.(8.64%), 100%-controlled and through Companhia de Seguros Allianz Portugal (0.20%), 65% held. 6) Through the companies controlled by Banco Totta & Açores (5.42%), by the staff pension funds of Banco Totta & Açores and CPP, and of the companies controlled by Totta (1.95%) and by unit trust (mutual) funds (0.27%). 7) Through the Banco BPI staff pension fund (2.22%), through the unit trust (mutual) funds managed by BPI Fundos (0.22%), through the Customer portfolios under Banco Português de Investimento’s discretionary management (0.06%) and held by management and supervisory bodies of Banco BPI and companies controlled by it (1.23%). 8) Through BCP and companies controlled by it (1.05%), by the BCP Group’s Pension Fund (1.91%) and by unit trust (mutual) funds (0.44%). 9) Shares held by companies of the Arsopi Group and by its shareholders. 10) Custodian bank. 11) Through BES and companies controlled by it (0.21%), by the BES Pension Fund (1.97%) and by unit trust (mutual) funds (0.08%). 12) Through companies controlled by Caixa Geral de Depósitos (0.16%), by the Caixa Geral de Depósitos’s Staff Pension Fund (1.60%) and by unit trust (mutual) funds (0.34%).
Report | Shareholders 149 Shareholder value creation
Return on investment (ROI)
The capital appreciation registered by BPI shares has been Annual return obtained by a Banco BPI shareholder
1 consistent: an investor who subscribed for shares in the BPI Market Since the Initial Public Offering share capital increase realised by way of an initial public September 1986 13.4% 9.9% offering in September 1986 has achieved an annual average Since the acquisition of Banco Fonsecas & Burnay return on his investment of 13.4% until the end of 2003. August 1991 10.7% 8.6% Since the acquisition of Banco Fomento e Exterior Had he opted for an alternative investment in Portuguese August 1996 14.2% 8.2% equities – using the PSI Geral index as the yardstick – the Last 2 years annual average return would have been 9.9%. December 2001 19.9% -3.5% 1) Return calculated on the basis of the closing price of the Table 79 PSI Geral index (“total return”) on 31 December 2003. The following table shows the various annual average rates of return earned by a shareholder who, having invested in BPI shares at the beginning of the year, disinvested at the end of the same year or at the end of each one of the following years:
Value creation for BPI shareholders1 (1981-2003) Percentage return; annual average rates Exit3 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Entry2 1981 56.0 70.6 50.0 43.2 31.5 25.6 22.9 27.5 16.2 12.5 14.3 26.7 27.2 24.4 19.5 12.3 11.1 13.9 19864 3,089 319.2 93.2 61.3 34.5 25.0 21.7 27.7 14.4 10.8 12.9 26.7 27.2 24.2 19.0 11.6 10.5 13.4 1987 148.4 39.2 29.3 15.0 11.4 11.5 18.6 8.2 5.9 8.6 21.7 22.7 20.4 16.0 9.6 8.8 11.7 1988 (16.2) (2.9) (6.5) (4.2) (0.5) 8.6 0.3 (0.7) 2.9 16.2 17.8 16.1 12.4 6.7 6.3 9.2 1989 12.6 (1.8) (0.5) 3.0 13.2 2.6 1.1 4.8 19.4 20.8 18.5 14.1 7.8 7.2 10.2 1990 (12.3) (5.3) 0.7 13.4 1.2 (0.1) 4.1 20.0 21.4 18.9 14.2 7.6 7.1 10.2 1991 0.5 4.9 19.8 3.3 1.3 5.7 23.3 24.4 21.3 15.8 8.5 7.8 11.0 1992 9.6 30.8 4.3 1.5 6.6 27.1 27.8 23.6 17.2 9.1 8.2 11.6 1993 56.2 1.8 (0.9) 6.0 30.3 30.5 25.4 18.0 9.1 8.2 11.7 1994 (30.9) (19.1) (4.8) 25.5 26.8 21.8 14.6 5.9 5.5 9.4 1995 (5.6) 9.6 49.0 43.9 33.4 22.1 10.4 9.1 13.0 1996 22.6 76.9 59.4 41.7 26.2 12.1 10.3 14.4 1997 139.9 77.5 47.2 26.8 10.5 8.9 13.6 1998 31.2 15.7 3.5 (7.2) (4.9) 2.2 1999 2.5 (7.4) (16.3) (11.3) (2.1) 2000 (16.0) (23.8) (15.1) (3.1) 2001 (30.4) (14.7) 1.1 2002 3.0 19.9
2003 38.5
1) The calculations are based on the assumption that during the investment period, the shareholder in question reinvested his dividends on the day Table 80 immediately after their receipt in order to acquire new BPI shares. It was also assumed that the same shareholder took part in all the capital increases and convertible-debt issues reserved for shareholders, subscribing for the maximum number of securities to which he was entitled. 2) Entry (at the beginning of the year). 3) Exit (at the end of the year). 4) Entry in September 1986 at the initial public offering.
150 Banco BPI | Annual Report 2003 Final acknowledgements
Despite 2003 having been a particularly adverse year on the economic front, the BPI Group was able not only to continue to implement its ambitious rationalisation plan directed at its organisation and functioning, but also to attain results and to record indicators which can be considered to be extremely positive. This would not have been possible, however, without the dedicated commitment of its Employees, the support and understanding of its Customers, the cooperation of the Monetary and Financial Authorities and the trust of its Shareholders.
The Board of Directors would like to express its sincere gratitude to all concerned.
A special word of appreciation is due to Eng. João Talone who renounced his mandate in the current financial year, thereby terminating his professional career at the age of 80. Eng. João Talone has participated in the BPI since its conception, having been a promoter, founder and member of the Board of Directors of first SPI-Sociedade Portuguesa de Investimento and then institution that eventually emerged – Banco BPI. The Board therefore takes this opportunity to express its most profound acknowledgement of his inestimable contribution to the BPI Group’s creation, affirmation and success.
Oporto, 3 March 2004
The Board of Directors
Report | Shareholder value creation and Final acknowledgements 151 Proposed appropriation of net profit
Banco BPI, S.A. made a consolidated net profit in 2003 of EUR 163 843 047 and an individual net profit of EUR 145 532 018.66.
The Board of Directors proposes that, in relation to the 2003 financial year, a dividend of EUR 0.09 (9 euro cents) be distributed for each one of the 760 000 000 shares representing the issued share capital at 31 December 2003.
The proposed dividend per share represents an 8% improvement on last year's payment after adjusting for the share capital increase which took place in 2002, and corresponds to 42% of consolidated net profit for the year.
In the individual accounts, Banco BPI must, in terms of article 97(1) of the General Regime for Credit Institutions and Financial Companies, transfer 10% of net profit to the legal reserve.
Accordingly, in the exercise of the powers conferred on it by article 16(2)(b) of the Statutes, the Board of Directors proposes the following appropriation of individual net profit for the financial year:
Transfer to the Legal Reserve (article 295 of the Companies Code) EUR 14 553 201.87 Dividends EUR 68 400 000.00 Transfer to Free Reserves EUR 62 578 816.79 Total EUR 145 532 018.66
Oporto, 3 March 2004
The Board of Directors
152 Banco BPI | Annual Report 2003 Consolidated financial statements CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER, 2003 AND 2002
2003 2002
ASSETS NotesGross Depreciation Net Net and provisions Cash and deposits at central banks 4.1 551 606 551 606 524 106
Loans and advances to credit institutions repayable on demand 4.2 483 377 483 377 330 065
Other loans and advances to credit institutions 4.3 2 484 329 82 942 2 401 387 3 168 181
Loans and advances to Customers 4.4 17 783 015 144 669 17 638 346 16 472 592
Bonds and other fixed income securities
Issued by government entities 4.5 1 755 573 1 755 573 2 145 047
Issued by other entities 4.5 1 189 238 3 299 1 185 939 711 777
Shares and other variable-yield securities 4.6 257 425 64 873 192 552 149 700
Investments in associated companies 4.7 108 656 5 086 103 570 106 961
Investments in subsidiary companies excluded from the consolidation 4.8 80 957 80 957 48 999
Other investments 4.9 540 634 61 492 479 142 485 164
Intangible assets 4.10 107 789 97 169 10 620 15 489
Tangible fixed assets 4.11 672 426 359 678 312 748 291 077
Of which: [Premises] [322 992] [125 382] [197 610] [183 315]
Treasury stock 29 620 29 620 3 044
Other assets 4.12 224 613 15 074 209 539 251 682
Accruals, deferrals and others 4.13 760 285 760 285 965 190
Total assets 27 029 543 834 282 26 195 261 25 669 074
OFF BALANCE SHEET ITEMS Guarantees provided and other contingent liabilities 4.28 2 907 044 3 122 781 Of which: [Guarantees and sureties] [2 836 525] [3 045 337] [Others] [70 519] [77 444] Commitments 4.28 3 449 706 3 146 468
The Accountant
154 Banco BPI | Annual Report 2003 (Amounts expressed in thousands of euro)
LIABILITIES AND SHAREHOLDERS' EQUITY Notes 2003 2002
Amounts owed to credit institutions
Repayable on demand 4.14 29 048 45 748
Term or notice deposits 4.14 6 167 223 6 581 508
Amounts owed to Customers
Savings deposits 4.15 871 989 868 361
Other debts
Repayable on demand 4.15 5 325 681 4 922 142
Term or notice 4.15 6 157 962 6 540 427
Debt securities
Outstanding bonds 4.16 4 298 061 3 541 429
Others 4.16 448
Other liabilities 4.17 154 893 198 097
Accruals, deferrals and others 4.18 698 101 703 666
Provisions for sundry risks
Provisions for retirement benefits 4.19 17 159 14 541
Other provisions 4.19 206 577 200 439
Fund for general banking risks 4.19 1 933 5 059
Subordinated debt 4.21 775 949 625 676
Minority interests 4.22 262 947 253 106
Subscribed share capital 4.23 760 000 760 000
Share premium account 4.24 231 306 286 833
Reserves 4.25 72 141 (18 027)
Consolidated net profit for the year 4.36 163 843 140 069
Total liabilities and shareholders' equity 26 195 261 25 669 074
The accompanying notes form an integral part of these balance sheets.
The Board of Directors
Consolidated financial statements 155 CONSOLIDATED STATEMENTS OF INCOME BY NATURE FOR THE YEARS ENDED 31 DECEMBER, 2003 AND 2002
EXPENSES Notes 2003 2002
Interest and similar expenses 4.29 1 023 054 1 127 657
Commissions 4.30 19 930 21 975
Losses on financial operations 4.31 1 100 843 994 458
General and administrative expenses
Personnel costs 4.32 284 577 285 661
Other administrative expenses 161 254 154 990
Depreciation 4.10 / 4.11 47 011 50 198
Other operating expenses 4.33 12 954 7 886
Provisions for overdue loans and other risks 4.27 126 922 126 494
Provisions for investments 4.27 6 690 4 232
Extraordinary expenses 4.34 47 909 48 562
Income tax 4.35 23 629 44 743
Other taxes 3 869 1 620
Minority interests in the consolidated net profit for the year 4.22 9 978 9 802
Consolidated net profit for the year 4.36 163 843 140 069
3 032 463 3 018 347
The Accountant
156 Banco BPI | Annual Report 2003 (Amounts expressed in thousands of euro)
INCOME Notes 2003 2002
Interest and similar income 4.29 1 490 829 1 604 857
Income from securities 4.29 6 751 10 393
Commissions 4.30 224 623 207 064
Gains on financial operations 4.31 1 137 020 1 014 006
Reversal of provisions 4.27 52 315 62 617
Earnings of associated companies and subsidiaries excluded from the consolidation 15 549 7 885
Other operating income 4.33 76 337 68 287
Extraordinary income 4.34 29 039 43 238
3 032 463 3 018 347
The accompanying notes form an integral part of these statements.
The Board of Directors
Consolidated financial statements 157 CONSOLIDATED STATEMENTS OF INCOME BY FUNCTIONS FOR THE YEARS ENDED 31 DECEMBER, 2003 AND 2002
(Amounts expressed in thousands of euro)
2003 2002
Financial margin 467 776 477 200
Provisions for credit risk (61 700) (35 857)
Credit recoveries 20 619 14 678
Net financial margin 426 695 456 021
Net commissions 204 693 185 089
Other net operating results 45 841 48 507
Services margin 250 534 233 596
Income from securities 6 751 10 393
Earnings of companies recorded by the equity method 15 549 7 885
Net gains on financial operations 36 177 19 548
Provisions for unrealised losses on securities 9 607 (17 225)
Investment margin 68 084 20 601
Other costs (6 946) (4 404)
Income before transformation costs 738 367 705 814
Personnel costs (284 577) (285 661)
Other administrative expenses (161 254) (154 990)
Depreciation (47 011) (50 198)
Transformation costs (492 842) (490 849)
Operacional result 245 525 214 965
Other provisions (29 204) (15 027)
Net gains on the sale of investments 13 111 20 256
Other extraordinary results (31 982) (25 580)
Profit before taxes and minority interests 197 450 194 614
Taxes (23 629) (44 743)
Minority interests (9 978) (9 802)
Consolidated net profit for the year 163 843 140 069
The accompanying notes form an integral part of these statements.
The Accountant The Board of Directors
158 Banco BPI | Annual Report 2003 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED 31 DECEMBER, 2003 AND 2002
(Amounts expressed in thousands of euro)
2003 2002
Operating activities Interest, commissions and similar income received 2 437 503 2 175 430 Interest, commissions and similar expenses paid (1 600 178) (1 393 113) Payments to personnel and suppliers (514 655) (7 268) Recovery of loans and interest in arrears 20 619 14 678 Net extraordinary operating expenses (31 554) (461 197) Net cash flow from income and expenses 311 735 328 530 Decreases (increases) in: Other loans and advances to credit institutions 740 368 345 114 Loans and advances to Customers (1 077 837) (1 155 626) Bonds and other fixed income securities (74 570) (101 014) Shares and other variable-yield securities (61 732) (9 728) Other assets, accruals, deferrals and others (19 166) 23 285 Net cash flow from operating assets (492 937) (897 969) Increases (decreases) in: Amounts owed to credit institutions – term or notice deposits (555 389) (67 759) Amounts owed to Customers 53 073 277 814 Other liabilities, accruals, deferrals and others 65 107 (33 678) Net cash flow from operating liabilities (437 209) 176 377 Contributions to the Pension Funds (21 180) (140 574) Income tax paid (15 675) (78 462) (655 266) (612 098) Investing activities Purchase/incorporation of equity investments: Aquapor – Serviços, S.A. (1 740) BPI Vida – Companhia de Seguros de Vida, S.A. (32 012) CrédiUniverso – Serviços de Marketing, S.A. (8 400) Solo – Investimentos em Comunicação, S.G.P.S., S.A. (7 223) Sale of equity investments: Luságua – Gestão de Águas, S.A. Banc Post, S.A. 23 000 Purchase of other investments (41 334) (31 964) Sale of other investments 66 814 239 312 Purchase of tangible fixed assets and intangible assets (78 638) (44 151) Sale of tangible fixed assets Premises for own activities 1 913 Other 4 243 689 Dividends received and other income 11 896 10 258 (54 431) 167 094
The accompanying notes form an integral part of these statements.
Consolidated financial statements 159 (Amounts expressed in thousands of euro)
2003 2002
Financing activities Issuance of debt securities and subordinated debt 2 182 098 927 650 Redemption of debt securities (1 251 820) (569 358) Purchase and sale of own debt securities and subordinated debt 139 016 75 775 Redemption of preference shares (204 587) Issuance of preference shares 250 000 Capital increase Nominal value 114 375 Share premium 85 781 Interest on debt securities and subordinated debt (127 716) (129 630) Dividends paid on preference shares (8 248) (9 568) Distribution of prior year profit (60 371) (57 875) 918 372 437 150 Net increase (decrease) in cash and equivalents 208 675 (7 854) Cash and equivalents at the beginning of the year 808 423 816 837 Changes in BPI Group companies (11 163) (560) Cash and equivalents at the end of the year 1 005 935 808 423
The accompanying notes form an integral part of these statements.
The Accountant The Board of Directors Alberto Pitôrra President Artur Santos Silva Vice-Presidents Carlos da Câmara Pestana Fernando Ulrich Ruy Octávio Matos de Carvalho Members Alfredo Costa Rezende de Almeida António Domingues António Farinha Morais Armando Leite de Pinho Fernando Ramirez Isidro Fainé Casas João Sanguinetti Talone José Pena do Amaral Klaus Dührkop Manuel Soares de Oliveira Violas Manuel Ferreira da Silva Maria Celeste Hagatong Diethart Breipohl Roberto Egydio Setúbal Tomaz Jervell
160 Banco BPI | Annual Report 2003 Notes to the consolidated financial statements Notes to the consolidated financial statements as of 31 December, 2003 and 2002 (Unless otherwise indicated, all amounts are expressed in thousands of euro – th. euro)
1. THE FINANCIAL GROUP
Banco BPI, S.A. (Banco BPI) is a company that resulted from At 31 December, 2003 the banking business of the Group was the transformation of BPI SGPS, S.A. (BPI SGPS), through carried out by two banks: BPI Investimentos, in investment change of its corporate name and purpose – that became banking; and Banco BPI, in retail banking. BPI Investimentos banking activities – and incorporation of the net assets and is fully owned by Banco BPI. operations of Banco BPI, S.A., which was subsequently extinguished. Banco BPI has direct and indirect investments in subsidiary and associated companies. Subsidiary companies are those in which The transformation became effective on 20 December, 2002, the participating interest exceeds 50% of the subsidiary’s share the date on which the operations involving the corporate capital. Associated companies are those in which the reorganisation of the BPI Group were registered in the participating interest is between 20% and 50% of their share commercial registry. The reorganisation also included: capital, or where Banco BPI has direct or indirect significant influence over their management and financial policy (note 4.7). the merger of BPI Ventures, SGPS, S.A., as of 1 January, 2002, and of Dixit Investimentos Estratégicos, SGPS, S.A. During 2002, the process of incorporation of BPI Cayman, Ltd. into BPI SGPS; was completed and it was authorised to operate as a bank. The share capital of that bank is th. euro 150 000 and is fully the spin-off of part of the net assets of Banco Português de owned by the BPI Group. Investimento, S.A (BPI Investimentos) and their incorporation into BPI SGPS; and, During 2002, the BPI Group founded BPI (Suisse), S.A. The share capital of that company amounts to 1 500 000 Swiss the merger of BPI Leasing – Sociedade Portuguesa de Locação francs, and the BPI Group’s participation therein is 99.87%. Financeira, S.A., BPI Factor – Sociedade Portuguesa de During 2003, the BPI Group subscribed the full amount of the Factoring, S.A. and Estratégia SGPS, S.A. into Banco BPI. capital increase of this company to 3 000 000 Swiss francs.
The BPI Group started operating in 1981 with the incorporation During 2003 Banco BPI acquired the remaining 50% of the of SPI – Sociedade Portuguesa de Investimentos, S.A.R.L. By share capital of CrédiUniverso – Serviços de Marketing, S.A. public deed dated December 1984, that company changed its Subsequently, CrédiUniverso was merged into Banco BPI. For corporate name to BPI – Banco Português de Investimento, S.A., accounting purposes, the merger was considered to take place which was the first private investment bank created after the re- on 1 January, 2003. -opening, in 1984, of the Portuguese banking sector to private investment. BPI – SGPS, S.A. was a holding company that During 2003 the BPI Group sold its 17% investment in the resulted from the transformation of BPI – Banco Português de share capital of Banc Post, S.A. Investimento, S.A. on 30 November, 1995, its exclusive purpose being to act as the BPI Group’s holding company. BPI During 2003, following the merger of Banco de Fomento Investimentos was created on this date, in order to act as BPI Moçambique, S.A.R.L. into Banco Comercial e de Investimentos, Group’s investment banking company. S.A.R.L., the BPI Group became holder of a 30% participation in the share capital of Banco Comercial e de Investimentos, Banco BPI is the central entity of a financial group dedicated S.A.R.L. and therefore this investment started being recorded in to the banking business, which offers a diversified range of accordance with the equity method. For accounting purposes, it financial services and products to companies, institutional was considered that the merger took place on 1 December, 2003. investors and individuals. Banco BPI has been listed on the stock exchange since 1986.
162 Banco BPI | Annual Report 2003 At 31 December, 2003, the companies that make up the BPI Group are:
Share- Total Net profit Direct Effective Consolidation Head Office holders' assets (loss) for participation Participation method equity the period Banks Banco BPI, S.A. Portugal 1 180 412 26 573 385 145 532 Banco Português de Investimento, S.A. Portugal 36 968 2 470 956 5 280 100.0% 100.0% Full consolid. Banco Comercial e de Investimentos, S.A.R.L. Mozambique 27 822 274 104 4 048 29.4% 30.0% Equity method Banco de Fomento, S.A.R.L.1 Angola 56 427 646 420 16 693 100.0% 100.0% Full consolid. Banco BPI Cayman, Ltd. Cayman Islands 155 399 461 565 5 399 100.0% Full consolid. Specialised loan companies BPI Rent – Comércio e Aluguer de Bens, Lda. Portugal (12 016) 186 271 (7 795) 100.0% 100.0% Full consolid. Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. Portugal 462 479 (2) 100.0% 100.0% Full consolid. BPI Locação de Equipamentos, Lda. Portugal (6 491) 31 320 (1 228) 100.0% 100.0% Full consolid. Asset management companies and dealers BPI Dealer – Sociedade Financeira de Corretagem (Moçambique), S.A.R.L. Mozambique 59 59 6 12.5% 92.7% Full consolid. BPI Fundos – Gestão de Fundos de Investimento Mobiliários, S.A. Portugal 17 027 21 318 11 664 100.0% 100.0% Full consolid. BPI – Global Investment Fund Management Company, S.A. Luxembourg 441 514 276 100.0% 100.0% Full consolid. BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. Portugal 4 778 5 323 2 003 100.0% 100.0% Equity method Sofinac – Sociedade Gestora de Fundos de Investimento Imobiliário, S.A. Portugal 1 186 1 364 267 100.0% 100.0% Full consolid. BPI (Suisse), S.A. Switzerland 688 1 425 (851) 99.90% Full consolid. Venture capital companies F. Turismo – Capital de Risco, S.A. Portugal 5 326 5 475 149 25.0% 25.0% Equity method Inter-Risco – Sociedade de Capital de Risco, S.A. Portugal 18 875 25 657 (1 930) 83.7% 83.7% Full consolid. Solo – Investimentos em Comunicação, SGPS, S.A. Portugal (27) 123 292 (43) 100.0% 100.0% Full consolid. Insurance companies BPI Vida – Companhia de Seguros de Vida, S.A. Portugal 75 332 1 569 153 4 022 100.0% 100.0% Equity method Cosec – Companhia de Seguros de Crédito, S.A. Portugal 25 243 120 479 1 261 50.0% 50.0% Equity method Companhia de Seguros Allianz Portugal, S.A. Portugal 118 831 878 447 13 076 35.0% 35.0% Equity method Others BPI Capital Finance Ltd.2 Cayman Islands 259 543 261 237 9 530 100.0% 100.0% Full consolid. BPI, Inc.3 U.S.A. 437 442 (188) 100.0% 100.0% Equity method BPI Madeira, SGPS, Unipessoal, S.A. Portugal 154 222 154 224 4 224 100.0% 100.0% Full consolid. Douro – Sociedade Gestora de Participações Sociais, S.A. Portugal 4 069 4 128 271 100.0% 100.0% Full consolid. Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. Portugal 37 381 159 710 1 173 32.8% 32.8% Equity method Promática – Sociedade de Informação e de Organização de Empresas, S.A. Portugal 589 755 (408) 100.0% 100.0% Equity method Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda. Portugal (5 092) 3 100 (15) 100.0% 100.0% Equity method Viacer – Sociedade Gestora de Participações Sociais, Lda. Portugal 84 662 63 377 23 663 26.0% 26.0% Equity method Note: Unless otherwise indicated, all amounts are as of 31 December, 2003 (accounting balances before consolidation adjustments). 1) Banco BPI holds 1 305 253 shares. The share capital of this company is 1 305 561 shares, fully owned by the BPI Group. 2) The share capital is made up of 5 000 ordinary shares with a nominal value of 1 US dollar each, and 10 000 000 non-voting preference shares with a nominal value of 25 US dollars each. The BPI Group's effective participation corresponds to 0.002% considering the preference shares. 3) These amounts refer to balances at 30 September, 2003, translated from US dollars at the exchange rate as of 31 December, 2003.
Consolidated financial statements | Notes 163 2. INFORMATION COMPARABILITY, BASIS OF PRESENTATION, CONSOLIDATION PRINCIPLES AND PRINCIPAL ACCOUNTING POLICIES
INFORMATION COMPARABILITY The financial statements of BPI Rent – Comércio e Aluguer de The financial statements of non-operating subsidiary or Bens, Lda., Eurolocação – Comércio e Aluguer de Veículos e associated companies, companies in liquidation, those in which Equipamento, S.A., BPI Locação de Equipamentos, S.A. and the investment is of a development nature, or those that are Douro – Sociedade Gestora de Participações Sociais, S.A. as of likely to be sold, were excluded from the consolidation and from 31 December, 2002 were reflected in the consolidated accounts application of the equity method. in accordance with the equity method. At 31 December, 2003, by indication of the Bank of Portugal, its financial statements The financial statements, expressed in foreign currencies, were were consolidated in accordance with the full consolidation included in the consolidation after being translated to euro at method. the exchange rates published by the Bank of Portugal, the exchange differences resulting from the translation being BASIS OF PRESENTATION recognised in the income statement. The consolidated financial statements were prepared from the accounting records of Banco BPI and its subsidiary and associated Goodwill and negative goodwill arising from the difference companies. The accounting records are maintained in accordance between cost and the corresponding equity value of subsidiary with the Chart of Accounts for the Portuguese Banking System and associated companies as of the date of the first established by the Bank of Portugal pursuant to the authority consolidation were fully amortised against reserves in the year conferred upon it by item 1 of Article 115 of the General Regime of acquisition, or of the first consolidation. for Credit Institutions and Financial Companies (“Regime Geral das Instituições de Crédito e Sociedades Financeiras”), approved Consolidated net profit is the sum of Banco BPI’s individual by Decree-Law 298 / 92 of 31 December (with the changes net result and the percentage of net results of the other Group introduced by Decree-Law 246 / 95 of 14 September, Decree-Law companies, equivalent to Banco BPI’s effective participation in 232 / 94 of 5 December, Decree-Law 222 / 99 of 22 June, them, considering the period they are held, after elimination of Decree-Law 250 / 00 of 13 October, Decree-Law 285 / 2001 of income and expenses resulting from inter-group transactions. 30 November and Decree-Law 201 / 2002 of 26 September), as well as the rules established in Decree-Law 36 / 92 of 28 March. Equity investments, which were not consolidated by the full In addition, consolidation adjustments were made in order to consolidation method or accounted for under the equity method, correct the application of some accounting principles. are stated in accordance with principles described in note 2.4.
CONSOLIDATION PRINCIPLES PRINCIPAL ACCOUNTING POLICIES The financial statements of subsidiary companies were The following accounting policies are applicable to the consolidated using the full consolidation method, except if their consolidated financial statements as of 31 December, 2003 consolidation would impair achievement of the objective of and 2002. presenting a true and fair view of the equity, financial position and results of the BPI Group (item 1 of Article 5 of Decree-Law 2.1. Accruals basis 36 / 92 of 28 March). All significant inter-group transactions Interest income and expenses are recognised in accordance with and account balances were eliminated in the consolidation the principle of accrual-based accounting, being recorded in the process. The amount of share capital, reserves and net results period to which they relate, regardless of when they are received corresponding to third party participation in these subsidiaries or paid. However, interest overdue is recorded as interest in is reflected in the caption MINORITY INTERESTS. arrears at the due date, awaiting settlement for a maximum period of 30 days. After this period, interest stops being accrued The investments in subsidiary companies which meet the on principal recorded as overdue and all interest accrued is conditions described in item 1 of Article 5 of the above reversed, except for interest on mortgage loans which remains mentioned Decree-Law, as well as investments in associated recorded up to the date those loans are sent for collection companies, are recorded based on the equity method. The through legal channels. These operations are considered as in carrying value of these investments corresponds to the litigation when the corresponding petition to execute is delivered percentage of share capital, reserves and results of these to the court, which is usually 150 days after the first default. companies, equivalent to Banco BPI’s direct or indirect participation in them.
164 Banco BPI | Annual Report 2003 Advertising campaigns relating to the launch of medium and Non-recoverable expenditure on leasehold buildings is amortised long term products and the “Banco BPI” brand, are recorded according to its estimated useful life, or the remaining period of as deferred costs when incurred and amortised to OTHER the lease contract, with a maximum period of 10 years.
ADMINISTRATIVE EXPENSES over the following thirty-six months. 2.3. Intangible assets Dividends are recognised when they are declared or received. In The BPI Group records, in this caption, notary, registration and accordance with this procedure, interim dividends are recorded other expenses relating to share capital increases as well as as income in the period in which they are declared. expenses with studies and projects (namely consulting studies and software) undertaken by third parties, if their impact Other income and expense items are also recognised on an extends beyond the financial year in which they are incurred. accruals basis, except for pension liabilities, which are recorded as explained in note 2.12. Intangible assets are amortised on a straight-line monthly basis using the maximum rates allowed by prevailing tax legislation, 2.2. Tangible fixed assets which, in general, correspond to a period of three years. Tangible fixed assets are stated at cost or at revalued amounts, calculated in accordance with the applicable legislation. The net 2.4. Equity investments surplus arising from the revaluations is recorded in the Investments in companies that are not consolidated nor accounted shareholders’ equity caption REVALUATION RESERVES. for under the equity method are recorded at cost.
Depreciation is provided on a straight-line monthly basis using Provisions for unrealised losses on equity investments are recorded the maximum rates allowed by prevailing tax legislation, which in accordance with Bank of Portugal Notices 4 / 2002 and 3 / 95 reflect the following estimated useful lives of the assets: of 25 June and 30 June, respectively.
Useful life (years) In accordance with Bank of Portugal Notice 4 / 2002, of 25 June, Premises 20 to 50 when the unrealised loss on an investment – determined using the Improvements in premises for own use 10 to 50 average of the daily market prices for the last six months for listed Non-recoverable expenditure on leasehold buildings 3 to 10 companies, or using the company’s equity value multiplied by the Equipment 3 to 12 Other fixed assets 3 to 10 factor 1.5 for unlisted companies – exceeds 15% of the corresponding book value of the investment, a minimum provision of 40% of that excess is required. In accordance with current tax legislation, 40% of the additional depreciation charge resulting from the revaluation of fixed assets The above mentioned Notice establishes a transitory regime is not deductible for income tax purposes. The resulting deferred applicable to the investments already in the portfolio at 31 tax liability is not recorded. December, 2001. Under this special regime, provisions and deductions to own funds resulting from unrealised losses on these Property received as settlement of defaulting loans is recorded in investments are recorded gradually up to 2006, if the investments the caption OTHER ASSETS BY THE AMOUNT STATED IN THE SETTLEMENT relate to companies that are not subject to Bank of Portugal or
AGREEMENT, which is the lower of the amount of the outstanding Portuguese Insurance Institute supervision, and up to 2011 if debt or the appraisal value as of the date of the agreement. the investments are in companies supervised by those entities. These properties remain stated as assets until they are sold, and Provisions recorded during 2002 and 2003 may be charged are subject to periodic appraisals, with provisions being recorded against reserves. Under this regime the BPI Group recorded, up to whenever the appraisal value is lower than their book value. 31 December, 2003, the full amount of the provisions required up to the end of the transitory period, in accordance with the terms of the notice.
Consolidated financial statements | Notes 165 In addition, Bank of Portugal Notice 3 / 95 of 30 June, establishes Treasury stock is recorded as explained above, except for that provisions for unrealised losses on equity investments are treasury stock relating to the RVA programme – Variable required if one of the following situations applies to the company Remuneration in shares (note 2.18). in which the investment is held: ii) Investment securities the company has incurred losses in three years, successive Securities acquired with the purpose of being held for a period or not, during the last five years; and, of more than six months are classified as investment securities.
the company is insolvent, has been declared bankrupt, has Securities issued at a discount are valued at their redemption been subject to some company recovery measure or has ceased price (nominal value). The difference between nominal value and operating. cost is recorded as deferred income. The interest accrued on these securities is recorded as income on a monthly basis, in accordance with the implicit interest rate determined on a 2.5. Bonds, shares and other fixed or variable-yield securities compound basis. Purchases and sales of securities are recorded on the transaction dates except where, by force of the contractual terms or of any Bonds and other fixed income securities issued at their nominal legal provision or regulation, the rights and obligations inherent to value are recorded at cost. Accrued interest is accounted for as the securities are transferred at a different date, in which case the interest receivable. The difference between the original cost of operations are only recorded on the date the transfer occurs. the securities and their redemption value – which represents the premium or discount at the time of purchase – is recorded as an The procedures for recording securities differ depending on their expense or income over the period to maturity. characteristics and the intention when they are purchased. Any positive difference between cost (corrected for the premium i) Trading securities or discount already recognised as expense or income, as Securities bought for subsequent resale within a period of six appropriate) and the market value of bonds and other fixed months, with the objective of obtaining a capital gain, are income securities is fully provided for (notes 2.8 and 4.5). classified as trading securities, provided that their nature and volume do not raise doubts as to their negotiability, taking into The carrying value of securities with interest capitalisation consideration market conditions. incorporates the accrued interest.
Bonds and other fixed income securities are recorded at cost and Shares and other variable income securities are recorded at cost. revalued daily based on their market value, plus accrued Whenever the market value (or estimated market value, in the interest. Unlisted bonds and other fixed income securities are case of unlisted securities) is lower than cost, a provision is recorded at cost plus accrued interest. Any negative or positive recorded (notes 2.8 and 4.6). differences arising from the application of these criteria are recognised as losses or gains, respectively (notes 2.8 and 4.5). Treasury stock is recorded as explained above.
Shares are recorded at market value or, in the case of unlisted iii) Short-selling of securities shares, at the lower of cost or estimated market value. Sales of securities that result in short positions are credited to
Differences between cost and the market value of shares the caption SHORT-SELLING OF SECURITIES, which is reflected under included in the composition of the BVL30 or PSI20 indexes the balance sheet caption AMOUNTS OWED TO CREDIT INSTITUTIONS OR
(Euronext) and shares with adequate liquidity are recorded as TO CUSTOMERS, depending upon the counter-party. expense or income. Differences between cost and the market value of other shares are recorded in the asset or liability Securities purchased to cover short positions arising from the balance sheet caption ACCRUALS, DEFERRALS AND OTHERS, short selling of securities are debited to the caption SHORT- depending on whether they represent unrealised losses or gains. -SELLING OF SECURITIES. Where they correspond to unrealised losses, a provision is recorded (notes 2.8 and 4.6).
166 Banco BPI | Annual Report 2003 The balance of the short-selling of securities account is adjusted Forward position daily based on the market value of the securities sold, the The forward position in any particular currency is the net valuation differences being recorded as expenses or income balance of forward operations pending settlement, excluding or deferred in the caption ACCRUALS, DEFERRAL AND OTHERS, those that mature in the ensuing two business days. All depending on the valuation criteria applicable to these securities contracts relating to these operations are revalued at market if they were part of the own trading portfolio. forward rates or in their absence, at forward rates calculated using the interest rates of the respective currencies applicable 2.6. Foreign currency operations for the time period remaining to maturity. Differences arising Foreign currency operations are recorded in conformity with the between the corresponding amounts in euro after applying the “multi-currency” system, that is in their original currencies. forward rates and the contracted exchange rates represent the loss or profit resulting from the revaluation of the forward The accounting procedures differ depending on the effect the position and are recorded in a foreign exchange position operations have on the foreign exchange position. While revaluation account (in the ACCRUALS, DEFERRALS AND OTHERS operations which cause a change in a foreign currency’s net caption) with a balancing entry to expenses or income. balance (for example purchases, sales and incorporation of results in a foreign currency) have a corresponding entry to the Foreign currency swaps foreign exchange position, the setting up or acceptance of Swaps and other foreign exchange rate hedging operations are deposits and the granting or collection of loans have no effect not included in the revaluation of spot and forward positions. on the foreign exchange position. The premiums and discounts on these operations are amortised on a straight line basis over the period to maturity, the i) Foreign exchange position and foreign currency swaps corresponding gain or loss being duly recognised. The content and revaluation criteria of foreign currency bills and coins and foreign exchange position, are as follows: ii) Translation to euro of balances expressed in foreign currencies Assets and liabilities expressed in foreign currencies are Foreign currency bills and coins translated to euro at the official market rates published by Foreign currency bills and coins are revalued daily using the the Bank of Portugal. fixing exchange rates published by the Bank of Portugal. Differences arising from the revaluations are recorded as income iii) Translation to euro of income and expenses expressed or expense for the period. in foreign currencies Income and expenses expressed in foreign currencies are Spot position translated to euro at the exchange rates in force on the dates The spot position in any particular currency is the net balance of they are recognised. all assets and liabilities denominated in that currency, plus the amount of spot transactions pending settlement and all forward 2.7. Provisions for specific credit risk operations maturing in the ensuing two business days. The spot Provisions are recorded for specific credit risk on loans, foreign exchange position is revalued using the daily fixing securities and interest in arrears, as well as for other credits of exchange rates published by the Bank of Portugal. The resulting doubtful collection, in accordance with Bank of Portugal Notice foreign exchange differences (in national currency) are recorded 3 / 95, of 30 June (with the changes introduced by Bank of in the foreign exchange position account, with a balancing entry Portugal Notice 8 / 03, of 30 January). to losses or gains.
Consolidated financial statements | Notes 167 The purpose of the provisions for loans, securities and interest 2.8. Provisions for unrealised losses on securities and other in arrears is to cover the risk of non-collection of overdue assets instalments of principal or interest (notes 4.3, 4.4, 4.5 and Provisions for unrealised losses on securities and other assets are 4.27). The amounts provided depend on the existence of any recorded in order to cover all unrealised losses arising from the collateral, and increase in proportion to the period of time that valuation criteria adopted for bonds, shares, other fixed and has elapsed since the default started. variable income securities and other assets (notes 2.4, 2.5, 4.5, 4.6, 4.9, 4.12 and 4.27). The purpose of the provisions for other doubtful debts is to cover the risk of non-collection of future instalments of debts not yet 2.9. Provisions for country risk due (notes 4.4, 4.12 and 4.27), as follows: The purpose of these provisions is to cover the risks associated with financial assets and off-balance sheet items over countries a) Instalments not yet due on operations with overdue considered to be of risk (notes 4.3, 4.4, 4.5 and 4.27). instalments of principal and interest in any one of the following situations: These provisions are recorded in accordance with the rules established by Bank of Portugal Notice 3 / 95 of 30 June, Bank (i) which exceed 25% of the total principal plus overdue of Portugal Instruction 94 / 96, published in the Bulletin of interest; Rules and Information no. 1 of 17 June, 1996 and the Bank of Portugal Bulletin under the reference 4903 / 02 / DSBDR of (ii) overdue for more than: 12 June, 2002. six months, on operations for periods of less than five years; 2.10. Provisions for sundry risks twelve months, on operations for periods of five to ten i) General credit risks years; The BPI Group's credit institutions subject to Bank of Portugal twenty-four months, on operations for periods equal to Notice 3 / 95, of 30 June (with the changes introduced by Bank or greater than ten years. of Portugal Notices 2 / 99 and 8 / 03, of 26 January and 30 January, respectively) record a provision for general credit risks The credits in the above conditions are considered to be of 1.5% of consumer credit and loans to individuals for overdue only for the purpose of determining the provisions unspecified purposes, of 0.5% for credits guaranteed by required, these being recorded using the rates applicable mortgage or real estate financial lease operations, in both cases to overdue credit on these operations. where the real estate is to serve as the borrower’s residence, and of 1% of other credit granted, including that represented by b) Principal not yet due on all loans to a Customer when, acceptances, guarantees and other instruments of a similar in accordance with the reclassification referred to in the nature (notes 4.19 and 4.27). The provisions released on loans preceding paragraph, the overdue instalments and interest guaranteed by mortgage of real estate or real estate financial on all the operations with that Customer exceed 25% of the lease operations, in both cases where the real estate is to serve total credit granted plus overdue interest (notes 4.4, 4.12 as the borrower’s residence, which became subject to a provision and 4.27). of 0.5% (instead of 1%), were mandatory used to record or increase the provisions for specific credit risks. The changes introduced by Bank of Portugal Notice 8 / 03, with respect to provisions for doubtful debts, had a transitory period In accordance with the prevailing tax legislation, only 50% of six months, becoming effective only as from August 2003. Up of the increases in this provision from 1 January, 2001 to 31 to that date the provisions for doubtful debts continued to be December, 2002 were considered as tax deductible costs. recorded in accordance with Bank of Portugal Notice 3 / 95. Increases in this provision as from 1 January, 2003 are no longer accepted as tax deductible costs. Additionally, in The Group banks carry out monthly risk assessments of all loans accordance with current tax legislation, as from 1 January, and guarantees provided and not yet matured, as well as of their 2001, when a reversal of provisions for general credit risks is securities portfolios, in order to assess the adequacy of the made, the first to be considered as income for the year are those provisions recorded. that were considered as tax deductible costs in the years they were recorded.
168 Banco BPI | Annual Report 2003 ii) Other risks the non utilisation, in the calculation of the present value of This caption includes provisions to cover other specific risks, the past service liability of current personnel, of decreases namely those arising from tax contingencies, legal processes, resulting from incapacity, unless that amount includes the credit risks of the loan portfolio and tax liabilities resulting from present value of the past service liability relating to the gains on derivative operations in progress which, in accordance guarantee of pensions due to incapacity or if the risk of with article 78 of the Portuguese Corporate Income Tax Code incapacity is fully transferred to an insurance company. (Portuguese initials – CIRC), only become taxable upon liquidation of those operations (notes 4.19 and 4.27). The past service liability (including the increased liability due to early retirements) is covered by pension funds. 2.11. Fund for general banking risks The purpose of this provision is to cover unspecified risks According to the established regime, the net accumulated associated with the operations of the BPI Group (notes 4.19 amount of the actuarial gains and losses resulting from changes and 4.27). in the actuarial and financial assumptions and changes in the general conditions of the pension plans, as well as amounts 2.12. Retirement and survivor pensions which exceed the corridor relating to differences between the The majority of Employees of the BPI Group are not covered by actuarial and financial assumptions used and the actual the Portuguese Social Security system. However, the BPI Group amounts, can be recorded as deferred expenses or deferred companies that have adhered to the Collective Vertical Labour income and must be amortised at a rate of at least 10% per Agreement (Acordo Colectivo de Trabalho Vertical) for the Banking year, as from the year subsequent to that in which they were Sector have assumed the commitment to pay their Employees or determined. At 31 December, 2003 and 2002 the BPI Group their families’ pensions for retirement due to age or incapacity, recorded, as deferred expenses, actuarial losses resulting from pensions for early retirement or survivor pensions. The pensions changes in the actuarial and financial assumptions and changes consist of a percentage, which increases with the number of years in the general conditions of the pension plans, as well as of service, applied to their salaries. amounts which exceed the corridor relating to differences between the actuarial and financial assumptions used and the The regime for calculating, recording, funding and expensing the actual amounts; and the amount that can be allocated to the liability for retirement and survivor pensions is established in corridor was recorded in valuation fluctuations (note 4.13). At Bank of Portugal Notice 12 / 2001 of 23 November with the 31 December, 2003 and 2002 the BPI Group recorded, as changes introduced by Bank of Portugal Notice 7 / 2002 of 31 deferred income, actuarial gains resulting from changes in the December. This regime came into force on 31 December, 2001 actuarial and financial assumptions and changes in the general and determines: conditions of the pension plans, as well differences between the actuarial and financial assumptions used and the actual the requirement to fully fund the pensions under payment and amounts, after the annulment of the corridor previously used a minimum of 95% of the past service liability for current (note 4.18). personnel; Under the provisions of Bank of Portugal Notice 12 / 2001, the establishment of a 10% corridor based on the higher of the the increase in the past service liability resulting from early present value of the past service liability or the amount of the retirements must be fully covered by a corresponding pension fund, so that the actuarial gains and losses resulting contribution to the Pension Fund, such contribution having to be from differences between the actuarial and financial expensed over a maximum period of 10 years, not exceeding the assumptions used and the actual amounts are not reflected fourth year following that in which the retirement would in the statement of profit and loss, provided that the net presumably have occurred. At 31 December, 2003 and 2002 accumulated amount is within this limit; and, the BPI Group recorded, in deferred expenses, the balance of the contributions to the Pension Fund resulting from the increase in the liability due to early retirements not yet charged to expenses (note 4.13).
Consolidated financial statements | Notes 169 The increase in the past service liability for current Employees, As lessor due to non utilisation of the decreases resulting from incapacity, Assets held under financial lease are recorded in the balance is being recognised as a cost and funded in accordance with a sheet as loans granted and are carried at the net amount paid plan of uniform annual instalments over a maximum period of on the date the assets are acquired. The lease instalments are 20 years as from the year 2002. The plan was approved by the composed of an interest income component and a principal Bank of Portugal. At 31 December, 2003 and 2002 the BPI repayment component. The interest income component for each Group recorded, in off balance sheet accounts, the increase in period reflects a constant rate of return on the outstanding the liability resulting from the above matter not yet amortised principal amount. or funded (note 4.28). 2.15. Factoring 2.13. Income tax Assets resulting from factoring operations with recourse are All the Group companies are subject to income tax individually. recorded in the balance sheet, as loans granted, by the amount advanced on account under the terms of the corresponding Banco BPI and its subsidiary and associated companies with contracts. head offices in Portugal are subject to the tax regimes established in the Corporate Income Tax Code (Portuguese Assets resulting from factoring operations without recourse are initials – CIRC) and in the Statute of Tax Benefits. recorded in the balance sheet, as loans granted, by the amount of the credit taken, with a corresponding entry to the liability
Profits generated by the Madeira and Santa Maria Off-shore caption CREDITORS FOR FACTORING CONTRACTS. The amounts Financial Branches of Banco BPI are exempt from corporate advanced under the contracts are debited to the caption income tax up to 31 December, 2011, in accordance with article CREDITORS FOR FACTORING CONTRACTS. 31 of the Statute of Tax Benefits. Under the provisions of Decree 555 / 2002 of 4 June, for the purpose of applying this The invoices received under factoring contracts with recourse, in exemption, at least 80% of the taxable profit from Banco BPI’s which amounts are not advanced, are recorded in the off-balance global operations is considered to result from activities outside sheet caption, CONTRACTS WITH RECOURSE – INVOICES NOT FINANCED, the institutional scope of the Madeira and Santa Maria Free by the amount of the invoices received. The balance of this Trade Zone. This regime came into force on 1 January, 2003. caption is reduced as the invoices are settled.
Banco BPI and its subsidiaries do not record deferred tax assets, Commitments under unused credit lines are recorded as off- namely those arising from tax losses carried forward, except for -balance sheet items. associated companies, where that is authorised by the Portuguese Official Chart of Accounts (“Plano Oficial de 2.16. Derivatives Contabilidade”) or by the Portuguese Insurance Institute. The Interest rate swaps BPI Group also does not record deferred tax liabilities, except Interest rate swaps are recorded, at their notional value, in off- on profits on derivative operations in progress which are only -balance sheet accounts and are classified as held for hedging considered for tax purposes in the year the operations are or trading purposes. liquidated. In the case of hedging operations, interest income and expenses 2.14. Financial Leasing are recorded in the statement of income on an accruals basis. As lessee Swaps are revalued only if provisions are recorded for losses on Leased tangible fixed assets are depreciated in accordance the assets hedged. with the procedures described in note 2.2. Lease instalments comprise an interest charge (financial expense) and a principal Trading operations are revalued daily and the interest flow is repayment component. Interest is recorded in the statement of recorded in the statement of income on an accruals basis. The income during the term of the lease in such a manner as to operations are revalued based on the present value of the future produce a constant interest rate charge on the outstanding amounts receivable and payable, calculated at market rates, less balance for each period. Liabilities are reduced by the amounts accrued interest. The resulting negative or positive differences corresponding to the principal repayment component of each are recorded directly in the statement of income, with a of the instalments. corresponding entry to an ACCRUALS, DEFERRALS AND OTHERS caption.
170 Banco BPI | Annual Report 2003 Forward rate agreements Options on indexes for hedging purposes are revalued monthly Forward rate agreements (FRA) are recorded, at their notional based on the evolution of the underlying indexes with profits and value, in off-balance sheet accounts and are classified as held losses being recorded in the statement of income with a for hedging or trading purposes. The entry is reversed at the corresponding entry to the captions ACCRUALS, DEFERRALS AND settlement date. OTHERS. These profits and losses are offset by the opposite results of the operations covered. Premiums paid on options In the case of hedging agreements the net interest received or purchased and premiums received on options sold are recorded paid on the settlement date is recognised over the period of the as deferred costs and deferred income and amortised over the operation and charged or credited to the expense or income period of the contracts. accounts associated with the hedged liabilities or assets. 2.17. Third party securities received for safekeeping Trading agreements are revalued monthly based on the loss or Third party securities received for safekeeping are recorded as profit that would result if settlement occurred on the revaluation off-balance sheet items at their market value or, in its absence, date. The resulting negative or positive differences are recorded at their nominal value (for fixed income securities), at cost (for as losses or gains, with a corresponding entry to the ACCRUALS, variable income securities) or at their equity value (for
DEFERRALS AND OTHERS captions. participating units in investment funds).
Futures 2.18. Treasury Stock relating to the Variable Remuneration in Futures contracts entered into for trading purposes and for the Shares (Remuneração Variável em Acções – RVA) proprietary account are recorded as off-balance sheet items at programme their market value, revalued daily. This entry is reversed on the The Variable Remuneneration in Shares (RVA) Programme is a date the positions are closed. remuneration plan under which part of the variable remuneration of the Executive Directors and Employees of the BPI Group (with These positions are revalued daily, based on the market price variable remuneration equal to or exceeding 2 500 euros) is paid or at the closing-out price (in the case of closed positions), with in BPI shares and BPI share options. The RVA programme varies profits and losses being recorded in the statement of income from 10% to 50% of the total variable remuneration, the with a corresponding entry to other assets (profits) and other percentage increasing as the responsibility level of the Director liabilities (losses). The balances on these accounts are cleared or Employee increases. Variable remuneration costs, including by corresponding entry to the financial movements arising daily the RVA programme costs, are recorded in the caption PERSONNEL by the settlement of the market price variations. COSTS.
Options The shares granted under the RVA programme become available Options contracts are recorded as off-balance sheet items at to the beneficiary on a gradual basis: 25% on the date they are their notional value and are classified according to their nature granted and 25% in each of the three following years. As from (hedging or trading). 2002, ownership of the shares granted under the RVA programme is fully transferred on the date they are granted1. The Trading options are revalued monthly, based on the available call options over the shares can be exercised between the first market quotations, with profits and losses being recorded in the and the fifth year, as from the date they are granted. statement of income with a corresponding entry to other assets and other liabilities accounts. Premiums received on options sold or paid on options bought are recorded as deferred income or expenses up to the strike data of the option.
1) Under the 2001 RVA programme, by option of the beneficiaries, the BPI Group granted shares under a suspense condition, in which ownership is transferred as the shares become available. Treasury stock granted under a suspense condition, not yet transferred to the beneficiaries, was recorded at the value of the grant, in the balance sheet asset caption ACCRUALS, DEFERRALS AND OTHERS, and is not revalued to fair value. As the difference between the cost of the shares and the value of the grant was recorded in the income statement, their book value corresponds to their sales value (value of the grant).
Consolidated financial statements | Notes 171 The BPI Group created a portfolio of BPI shares in order to of the underlying shares. The treasury stock held to hedge the hedge the liability resulting from issuing call options over the risk of variation in the value of the options sold is recorded in BPI shares, following a delta hedging strategy (determined using the trading portfolio, where it remains while held for that a model to evaluate the BPI share options, developed in-house purpose. The shares are revalued to market value, the valuation based on Black-Scholes methodology). This strategy corresponds differences being recorded in ACCRUALS, DEFERRALS AND OTHERS to the creation of a portfolio with delta shares for each option captions. If the net amount of these differences and the granted, delta corresponding to the relationship between the revaluation of the share options corresponds to a loss, a evolution of the price of an option and the evolution of the price provision of the same amount is recorded.
172 Banco BPI | Annual Report 2003 3. BREAKDOWN OF APPLICATIONS BY BUSINESS SECTOR AND PORTFOLIO OF SECURITIES AND EQUITY INVESTMENTS
3.1. Breakdown of applications by business sector At 31 December, 2003 the applications of the BPI Group companies consolidated by the full consolidation method, broken down by business sector were as follows:
Loans1 and se- Guarantees Loans curities overdue given2 Bonds3 Shares4 Total
Amount % Amount % Amount % Amount % Amount % Amount % Agriculture, forestry and fishing 71 163 0.4 969 0.4 6 813 0.2 78 945 0.4 Mining 63 855 0.4 484 0.2 9 540 0.3 73 879 0.3 Manufacturing industries Beverage, tobacco and food 263 982 1.5 2 419 1.0 63 463 2.2 70 759 6.0 566 0.2 401 189 1.8 Textiles and clothing 292 765 1.7 14 233 5.9 47 075 1.6 562 2 504 1.0 357 139 1.6 Leather and related products 37 596 0.2 2 604 1.1 3 086 0.1 4 43 290 0.2 Wood and cork 158 948 0.9 2 672 1.1 51 686 1.8 213 306 1.0 Pulp, paper and cardboard and graphic arts 129 320 0.7 1 577 0.7 32 909 1.1 110 163 916 0.7 Coke, oil products and nuclear fuel 1 086 10 492 0.4 458 0.2 12 036 0.1 Chemical and synthetic or artificial fibres 57 456 0.3 1 215 0.5 27 178 0.9 1 871 0.2 25 87 745 0.4 Rubber and plastic materials 59 560 0.3 960 0.4 11 955 0.4 62 72 537 0.3 Other mineral non-metallic products 312 547 1.8 1 004 0.4 81 080 2.8 2 200 0.2 396 831 1.8 Metalworking industries 181 652 1.0 3 170 1.3 49 772 1.7 10 000 0.8 374 0.1 244 968 1.1 Manufacturing of machinery and equipment 84 926 0.5 2 307 1.0 34 908 1.2 4 988 0.4 89 127 218 0.6 Manufacturing of electrical and optical equipment 67 660 0.4 256 0.1 34 547 1.2 2 117 0.8 104 580 0.5 Manufacturing of transport material 53 299 0.3 1 207 0.5 84 766 2.9 5 623 0.5 702 0.3 145 597 0.7 Other manufacturing industries 77 145 0.4 2 668 1.1 13 454 0.5 8 93 275 0.4 Electricity, gas and water 278 292 1.6 4 292 209 10.1 1 559 0.1 7 038 2.7 579 102 2.6 Construction 754 629 4.3 39 664 16.6 593 039 20.3 2 494 0.2 1 203 0.5 1 391 029 6.3 Wholesale and retail trading 1 396 124 8.0 19 694 8.2 394 317 13.5 19 480 1.6 3 856 1.5 1 833 471 8.3 Restaurants and hotels 150 328 0.9 1 517 0.6 26 391 0.9 2 500 0.2 385 0.1 181 121 0.8 Transport, warehousing and communication 562 784 3.2 3 213 1.3 315 738 10.9 3 636 0.3 3 090 1.2 888 461 4.0 Banks and other credit institutions 4 996 2 876 1.2 46 967 1.6 79 947 6.7 72 738 28.3 207 524 0.9 Other financial institutions and insurance companies 175 783 1.0 11 5 929 0.2 34 642 2.9 8 518 3.3 224 883 1.0 Investment holding companies 337 750 1.9 779 0.3 179 244 6.2 22 533 1.9 26 608 10.3 566 914 2.6 Real estate, rental and services provided to companies 858 033 4.9 7 089 3.0 191 866 6.6 11 893 1.0 1 324 0.5 1 070 205 4.8 Public administration, defence and mandatory social security 579 689 3.3 128 0.1 57 037 2.0 636 854 2.9 Education, health care and welfare 355 957 2.0 1 197 0.5 36 009 1.2 967 0.4 394 130 1.8 Leisure, cultural and sports activities 93 879 0.5 314 0.1 74 431 2.6 2 361 0.2 63 659 24.8 234 644 1.1 Other service companies 38 341 0.2 510 0.2 2 070 0.1 40 921 0.2 Individuals Housing loans 6 418 674 36.7 67 963 28.5 6 486 637 29.3 Others 2 704 127 15.4 48 890 20.5 45 080 1.6 2 798 097 12.6 Multinational financial institutions 4 683 42 530 3.7 1 577 0.6 48 790 0.2 Other sectors 62 173 0.4 3 431 1.4 967 4 072 1.6 70 643 0.3 Non-residents 854 646 4.9 4 337 1.8 83 026 2.9 869 403 73.1 55 433 21.6 1 866 845 8.4 17 543 848 100.0 239 362 100.0 2 907 044 100.0 1 189 043 100.0 257 425 100.0 22 136 722 100.0 1) The loans overdue refer to loans granted to Customers. 2) Includes guarantees and sureties, open documentary credits and acceptances and endorsements. 3) Does not include bonds issued by government entities. 4) Includes quotas, participating units and other items.
Consolidated financial statements | Notes 173 3.2 Securities and equity investments At 31 December, 2003 securities and equity investments owned by the BPI Group companies consolidated by the full consolidation method were as follows:
Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro TRADING SECURITIES Bonds and other fixed income securities – issued by residents Issued by Portuguese government entities Treasury Bonds TB 3% July – 2003 / 2006 893 800 000 0.01 0.01 0.01 9 084 TB 3.625% – August 1999 / 2004 1 503 082 0.01 0.01 0.01 15 TB 4.875% – August 2002 / 2007 216 706 731 0.01 0.01 0.01 2 323 TB 5.25% – October 2000 / 2005 512 054 014 0.01 0.01 0.01 5 414 TB 5.45% – September 1998 / 2013 220 988 568 0.01 0.01 0.01 2 428 TB 5.85% – May 2000 / 2010 504 849 258 0.01 0.01 0.01 5 771 TB 6.625% – February 1997 / 2007 14 821 0.01 0.01 0.01 TB 8.875% – January 1994 / 2004 33 405 900 0.01 0.01 0.01 363 TB 9.5% – February 1996 / 2006 47 984 350 0.01 0.01 0.01 585 TB 11.875% – February 1995 / 2005 100 022 220 0.01 0.01 0.01 1 207 0.10 27 190 Bonds and other fixed income securities – issued by non-residents Issued by foreign government entities Treasury Bills Angola Treasury Bills 2 650 000 10.12 8.09 8.09 26 807 26 807 Bonds National Bank of Angola 4 167 000 10.12 8.30 8.30 42 152 Belgium Kingdom – 3% (28/09/2008) 19 610 000 1.00 0.97 0.98 19 300 Belgium Kingdom – 3.75% (28/03/2009) 27 080 000 1.00 1.00 1.00 27 976 Belgium Kingdom – 4.25% (28/09/2013) 17 930 000 1.00 0.98 0.99 17 995 Belgium Kingdom – 5% (28/09/2011) 2 975 000 000 0.01 0.01 31 869 Belgium Kingdom – 5.75% (28/03/2008) 9 400 1 000.00 1 088.90 1 090.40 10 660 Belgium Kingdom – 5.75% (28/09/2010) 23 900 000 1.00 1.11 1.11 26 772 Bundesobligation – 4.5% (17/08/2007) 300 000 000 0.01 0.01 3 178 Bundesobligation – 5% (19/08/2005) 600 000 000 0.01 0.01 6 347 Bundersrepublik Deutschl. – 5% (04/07/2011) 3 832 000 000 0.01 0.01 0.01 41 607 Buonni Poliennali – 3.5% (15/09/2005) 10 000 1 000.00 1 014.40 1 016.10 10 263 Buonni Poliennali – 5.25% (01/08/2011) 28 904 1 000.00 1 064.92 1 072.90 31 643 Fannie Mae – 3.25% (15/01/2008) 7 700 792.00 792.25 792.01 6 189 Fannie Mae – 4.125% (29/12/2008) 5 000 792.00 791.77 784.84 3 925 Fannie Mae – 5% (15/01/2007) 6 900 792.00 845.05 844.18 5 950 Fannie Mae – 5.74% (21/01/2009) 5 000 792.00 802.73 793.50 4 068 Fannie Mae – 6.125% (15/03/2012) 4 850 792.00 888.35 880.03 4 337 Fannie Mae – 6.4% (15/05/2009) 10 000 792.00 806.81 805.87 8 123 Fed Home Loan MTG Corp – 5.75% (15/03/2009) 7 350 792.00 871.50 867.29 6 444 Finnish Government – 3% (04/07/2008) 40 1 000.00 974.40 980.70 40 Finnish Government – 5.375% (04/07/2013) 10 000 1 000.00 1 085.30 1 083.90 11 103 Finnish Government – 5.75% (23/2/2011) 5 250 1 000.00 1 095.87 1 106.90 6 068 France (Govt of) – 4.25% (25/04/2019) 2 370 000 1.00 0.95 0.95 2 332 France OAT – 4% (25/10/2009) 6 470 000 1.00 1.01 1.01 6 604 France OAT – 5.5% (25/04/2007) 42 770 000 1.00 1.07 1.07 47 503 France OAT – 5.5% (25/04/2010) 5 320 000 1.00 1.09 1.09 6 008 France OAT – 5.5% (25/10/2010) 19 670 000 1.00 1.09 1.09 21 684 France OAT – 8.5% (25/10/2019) 4 560 000 1.00 1.43 1.43 6 586
174 Banco BPI | Annual Report 2003 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Bonds and other fixed income securities – issued by non-residents Issued by foreign government entities (cont.) Bonds (cont.) French Treasury Note – 3% (12/07/2008) 40 150 000 1.00 0.98 0.98 39 921 French Treasury Note – 4.5% (12/07/2006) 16 360 000 1.00 1.04 1.04 17 365 Netherlands Government – 4% (15/07/2005) 30 200 000 1.00 1.02 1.02 31 449 Netherlands Government – 4.25% (15/07/2013) 25 365 000 1.00 0.99 1.00 26 296 Netherlands Government – 5% (15/07/2011) 12 700 000 1.00 1.06 1.06 13 754 Netherlands Government – 5% (15/07/2012) 24 700 000 1.00 1.06 1.06 26 686 Netherlands Government – 5.75% (15/02/2007) 19 590 000 1.00 1.08 1.08 22 106 Obligac. Del Estado – 4% (31/01/2010) 10 360 1 000.00 1 007.33 1 009.00 10 839 Obligac. Del Estado – 4.25% (31/10/2007) 71 399 1 000.00 1 031.66 1 033.70 74 311 Obligac. Del Estado – 4.8% (31/10/2006) 17 640 1 000.00 1 049.75 1 049.90 18 661 Obligac. Del Estado – 5% (30/07/2012) 18 861 1 000.00 1 061.80 1 056.40 20 322 Obligac. Del Estado – 5.15% (30/07/2009) 2 874 001 176 0.01 0.01 0.01 31 435 Obligac. Del Estado – 5.4% (30/07/2011) 17 453 1 000.00 1 082.07 1 085.00 19 333 Obligac. Del Estado – 5.5% (30/07/2017) 5 000 1 000.00 1 082.30 1 093.10 5 580 Danmark Kingdom – 5% (15/11/2013) 7 670 000 000 0.00 0.00 10 796 Swedish Kingdom – 6.5% (05/05/2008) 12 500 551.00 599.34 604.30 7 846 Swedish Kingdom – 6.75% (05/05/2004) 3 000 551.00 638.15 637.56 1 986 Rep. of Greece – 2.75% (21/06/2006) 9 540 1 000.00 996.75 996.80 9 719 Rep. of Greece – 3.5% (18/04/2008) 12 000 1 000.00 995.36 999.70 12 374 Rep. of Greece – 4.6% (20/05/2013) 5 000 1 000.00 1 012.20 1 013.10 5 284 Rep. of Greece – 4.65% (21/06/2005) 5 000 1 000.00 1 044.89 1 031.30 5 279 Rep. of Greece – 5.25% (18/05/2012) 34 910 1 000.00 1 066.33 1 065.80 38 344 Rep. of Greece – 5.9% (22/10/2022) 5 000 1 000.00 1 109.00 1 107.00 5 592 Rep. of Greece – 6% (19/02/2006) 2 750 000 000 0.01 0.01 0.01 30 743 Rep. of Greece – 6% (19/05/2010) 674 975 027 0.01 0.01 0.01 7 763 Rep. of Greece – 6.3% (29/01/2009) 400 001 142 0.01 0.01 0.01 4 711 Rep. of Austria – 5% (15/07/2012) 25 100 1 000.00 1 052.30 1 056.00 27 085 Rep. of Austria – 5.5% (15/01/2010) 17 820 1 000.00 1 100.68 1 089.50 20 355 Rep. of Austria – 5.5% (20/10/2007) 15 060 1 000.00 1 088.89 1 077.10 16 384 U.S.Treasury – 2.125% (31/10/2004) 27 500 792.00 798.08 797.83 22 017 U.S.Treasury – 3.25% (15/08/2008) 3 800 792.00 796.90 796.28 3 063 U.S.Treasury – 3.875% (15/01/2009) 2 250 000 1.00 1.00 1.01 2 304 U.S.Treasury – 4.25% (15/08/2013) 1 000 792.00 788.80 792.25 805 U.S.Treasury – 4.625% (15/05/2006) 16 800 792.00 837.23 838.85 14 170 U.S.Treasury – 4.75% (15/11/2008) 1 850 792.00 847.90 847.16 1 576 U.S.Treasury – 4.875% (15/02/2012) 2 450 792.00 842.73 837.91 2 089 U.S.Treasury – 5% (15/02/2011) 12 100 792.00 851.27 849.69 10 461 U.S.Treasury – 5.375% (15/02/2031) 1 000 792.00 814.18 825.72 842 U.S.Treasury – 5.75% (15/08/2010) 1 900 792.00 887.55 887.12 1 718 U.S.Treasury – 5.75% (15/11/2005) 13 400 792.00 851.77 849.85 11 465 U.S.Treasury – 6% (15/08/2009) 2 950 792.00 896.70 896.35 2 697 U.S.Treasury – 6.5% (15/10/2006) 9 700 792.00 883.09 881.63 8 657 U.S.Treasury – 6.5% (15/02/2010) 3 500 792.00 926.95 919.59 3 286 1 064 195 International Financial Entities Bonds BEI / 1999 – EUR – 4.875% (15/04/2006) 625 000 8.00 8.38 8.36 5 400 BEI – EUR / 2002 – 5.375% (15/10/2012) 9 830 1 000.00 1 069.31 1 080.00 10 728 16 128
Consolidated financial statements | Notes 175 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Issued by other non-residents Other Bonds Kredit Fuer Wieder. – 3.5% (15/11/2005) 10 000 1 000.00 1 011.50 1 015.80 10 202 TDM 2001 47 050 0.83 0.83 0.83 41 10 243 Shares and other variable-yield securities – issued by residents Incorporation rights Sag Gest – Dir. Sub. (Ob. C/ War) – E03 34 740 0.01 Shares Banco Comercial Português – Nom. 3 532 773 1.00 1.71 1.77 6 253 Banco Espírito Santo – Nom. 91 609 5.00 12.61 13.00 1 191 Brisa – Priv. 163 961 1.00 5.26 5.30 869 Cimpor – Cim. de Portugal – SGPS 138 460 1.00 3.65 4.10 568 Cofina – SGPS 15 617 0.50 2.21 2.50 39 Corticeira Amorim – SGPS 30 429 1.00 1.15 1.15 35 EDP – Electricidade de Portugal – Nom. 3 134 268 1.00 2.05 2.09 6 551 Efacec Capital, SGPS 39 744 5.00 2.80 3.71 111 Gescartão, SGPS 2 093 5.00 7.72 7.72 16 Impresa – SGPS 345 359 1.00 1.73 3.50 1 209 Jerónimo Martins – SGPS 4 651 5.00 8.52 10.46 49 Novabase, SGPS 27 100 0.50 5.88 5.90 160 Pararede – SGPS 50 232 0.20 0.24 0.26 13 Portucel Industrial – Nom. 77 763 1.00 1.34 1.40 109 Portugal Telecom – Nom. 349 945 1.00 7.84 7.98 2 793 PT Multimédia, SGPS – NOM. 143 192 0.50 14.95 15.40 2 205 SAG GEST – Soluções Autom. Globais, SGPS 14 329 1.00 1.21 1.43 20 Semapa – Soc. de Inv. e Gestão – SGPS 117 304 1.00 3.01 3.60 422 Sonae.Com., SGPS 31 574 1.00 2.22 2.37 75 Sonae SGPS 5 235 542 1.00 0.67 0.66 3 455 26 143 Other variable-yield securities – issued by non-residents Shares Altadis 17 000 0.60 20.89 22.50 383 Arcelor 20 000 1.00 13.53 13.67 273 Banco Bilbao Vizcaya Argentaria 136 200 0.49 9.61 10.95 1 491 Banco Santander Central Hispano 44 269 0.50 7.81 9.39 416 Banco Santander Central Hispano (BVLP) – N 474 831 0.50 7.96 9.26 3 745 Commerzbank AG 19 017 2.56 16.10 15.55 296 Ebro Puleva 20 000 0.60 8.29 8.99 162 Endesa – Empresa Nacional Electricidade 21 000 1.20 13.71 15.25 320 ENEL SPA 25 000 1.00 5.30 5.39 135 Euronext 7 000 1.00 19.76 19.20 138 4 Gamesa Corp Tecnologia 27 000 0.50 24.41 26.09 704 Grupo Ferrovial 12 000 1.00 24.58 27.78 333 Iberdrola 15 000 3.00 14.47 15.67 235 Infineon Technologies AG 8 100 1.00 12.32 11.02 89 Man AG 5 000 1.00 22.59 24.00 120 NH Hoteles 26 000 2.00 9.38 9.11 237 Nokia OYJ 17 300 0.06 14.18 13.71 237 Peugeot Citroen 6 400 1.00 36.37 40.40 259 Reed Elsevier NV 42 200 0.06 9.82 9.85 416
176 Banco BPI | Annual Report 2003 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Other variable-yield securities – issued by non-residents (cont.) Shares (cont.) Repsol YPF 18 800 1.00 12.98 15.46 291 Royal Dutch Petroleum 4 000 0.56 37.63 41.80 167 Telefonica 147 472 1.00 10.54 11.64 1 717 Unicrédito Italiano SPA 50 000 0.50 4.24 4.28 214 Vivendi Universal 1 700 5.50 18.63 19.27 33 12 411 4 Participating units Rydex US Government Money Mark Fund 482 469 530 0.00 0.00 382 382 TREASURY STOCK Banco BPI, S.A. (RVA 2001) 3 018 864 1.00 2.58 2.92 8 815 Banco BPI, S.A. (RVA 2002) 7 124 939 1.00 2.40 2.92 20 805 29 620 1 213 119 4 INVESTMENT SECURITIES Fixed income securities – issued by government entities Issued by Portuguese government entities Treasury bonds TB 3.625% August 1999 / 2004 260 004 000 0 0.01 0.01 2 586 TB 5% June 2002 / 2012 50 000 000 000 0.01 0.01 0.01 509 961 TB 5.25% October 2000 / 2005 7 650 000 000 0.01 0.01 0.01 79 042 TB 8.875% January 1994 / 2004 79 0.01 0.01 0.01 TB 11.875% February 1995 / 2005 560 131 728 0.01 0.01 0.01 5 724 597 313 Bonds issued by other Portuguese government entities Bonds Governo Regional da Madeira / 1994 float 96 0 0.02 0.01 Issued by foreign government entities Bonds Gov. Spain – JPY / 1995 – 4.75% (14/03/2005) 100 74 047 74 046.65 74 046.65 7 405 Obligac. Del Estado – 4.5% (30/07/2004) 52 0.01 0.02 0.01 Angola Treasury Bonds 10 427 1 011.57 752.06 992.07 10 344 Greece Republic – EUR / 1998 – 5.75% (31/3/2008) 15 000 000 1.00 0.99 1.00 14 914 Greece Republic – JPY / 1999 – 0.76% (29/01/2004) 1 000 7 405.00 7 394.04 7 404.66 7 405 40 068 Fixed income – other issuers Issued by other Portuguese entities Cash bonds Banco Alves Ribeiro / 1999 – A Séries – Cash bonds 30 000 50 50.00 50.00 1 500 Banco Alves Ribeiro / 2001 – 1st Issue – Cash bonds 500 5 000.00 5 000.00 5 000.00 2 500 4 000 Other bonds Auto Sueco / 1999 896 000 5 5.00 5.00 4 480 Auto Sueco / 2000 1 000 000 5.00 5.00 5.00 5 000 Banco Itaú Europa – Float. Rate (24/07/2006) 7 000 1 000.00 997.90 999.50 6 988 CMP / 1997 4 0.01 0.01 Fábrica Textil de Vizela / 1987 (Ac. Cred.) 127 800 4.41 4.40 1.54 562 365 Fábrica Vidros Barbosa & Almeida / 1997 698 317 056 0.00 0.00 2 023 28 Fapobol / 1995 200 000 1.24 1.17 1.24 62 Inparsa / 1998 (Obg. s/ war.) 949 711 0.01 0.01 0.01 10 Jerónimo Martins / 97 404 087 709 0.01 0.01 0.01 5 862 43
Consolidated financial statements | Notes 177 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Fixed income – other issuers (cont.) Issued by other Portuguese entities (cont.) Other bonds (cont.) Jerónimo Martins 2003 – Float. Rate 668 000 5.00 5.00 3 340 Lisnave – Estaleiros Navais de Lisboa – 92 / 070530 9 854 251 0.01 0.01 0.01 64 2 Medinfar / 2003 – Float. Rate (15.12.2008) 180 5 5.00 1 Polimaia / 89 – Série C 4 000 2.24 1.66 9 Salvador Caetano / 2002 – 1st Issue 500 000 10.00 10.00 10.00 5 000 Secil Prebetão – Prefabricados de Betão, S.A. 53 066 909 0.01 0.00 0.00 177 Soares da Costa / 2000 1 250 000 4.00 4.35 4.38 5 455 Somague SGPS / 1998 115 084 4.99 4.99 4.92 574 8 39 607 446 Commercial paper Arsopi Em. 76 4 988 Banif Leasing S.A. Em 21 1 500 Climaespaço Em. 27 1 559 Compal 4 Em. 1 327 Companhia Portuguesa de Computadores 12 1 250 Empresa Tráfego Estiva 4 1 870 Euroges Em. 13 2 300 Incompol 5.ª 623 Jaba Farmaceutica Em. 15 1 870 J.B.Fernandes – 46 Emissão 500 JM Fonseca Intl Vinhos 3 1 000 JM Fonseca Sucs Vinhos 4 2 650 JMR Gestão Emp Retalho 29 400 Jornal Notícias Em. 34 2 361 JP Vinhos Em. 1 1 000 M&J Pestana – 116th 2 500 Manuel Poças Junior 10th 469 Mundileasing Em. 5 3 333 Procme E7 2 494 Recheio SGPS 14th 9 100 Rentipar Em. 9 2 000 Soc. Franc. Man. Santos 11 3 943 Soc. Franc. Man. Santos 12th 7 886 Soc.Vi.Terras Valdigem 10 313 Solverde 135th 10 000 Sonae SGPS Em. 66 458 Sonae SGPS Em. 67 5 576 Tertir 13 1 766 Unicer Em. 5 50 000 Unicer Em. 11 6 900 Unicer Em. 12 7 100 139 036 Issued by foreign entities Issued by international financial entities Bonds BEI – PTE / 1995 – Float. Rate (Mar. 2005) 5 226 600 5 5.00 4.97 26 071 76 BEI – PTE / 1996 F.R.N. (Dec. 2006) 3 299 500 4.99 4.99 4.97 16 458 46 42 529 122
178 Banco BPI | Annual Report 2003 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Fixed income – other issuers (cont.) Issued by other foreign entities Other bonds Aegis SRL – CL 1 Float. Rate (01/06/2016) 50 29 059 30 574.84 28 928.62 1 453 7 Allianz Fin.II B.V. – 6.125% (31/05/2022) 12 500 1 000.00 1 028.14 1 066.62 12 841 Allianz Fin.II B.V. – 6.5% (13/01/2025) 15 000 1 000.00 1 031.67 1 090.98 15 461 Allied Domeq Fin Serv – 5.875% (12/06/2009) 5 000 1 000.00 1 082.20 1 078.03 5 368 Anglian Water Ser. Fin – 4.625% (2013/10/07) 2 000 1 000.00 999.39 982.02 1 999 35 AT&T Corp. – 6% (21/11/2006) 5 000 1 000.00 1 073.70 1 070.84 5 345 Avalon Capital Ltd. 2 – Float. Rate (24/5/2012) 14 000 792.00 791.33 791.77 11 080 Bat Intl Finance PLC (3/04/2006) 12 500 1 000.00 997.94 1 005.30 12 477 Brazil Div Pymt Rights – Float. Rate (20/03/2007) 10 000 792.00 791.77 791.77 7 918 Brazilian Her Vouch R 5.911% (15/06/2011) 3 000 791.77 791.76 791.77 2 375 Casino Guichard Perrac – 5.875 (23/11/2007) 10 000 1 000.00 1 074.70 1 066.32 10 642 Crédit Local France Zero Coupon – PTE / 2007 25 000 498.80 532.37 784.41 18 432 CVRD Finance Ltd. Float. Rate (15/10/2007) 300 6 562.00 6 561.56 6 528.75 1 969 10 Daimlerchrysler Int. F. – 6.125% (21/3/2006) 5 000 1 000.00 1 054.20 1 056.77 5 233 Deutshe Telekom Int Fin – 5.875 (11/07/06) 45 000 1 000.00 1 065.12 1 070.37 47 331 Deutshe Telekom Int Fin – 6.625 (06/07/05) 6 000 1 000.00 1 067.10 1 054.63 6 281 Deutshe Telekom Int Fin – 6.625 (11/07/11) 10 000 1 000.00 1 115.00 1 140.88 11 058 Dollar Divers. Ri. F – 6.55% (16/12/2013) – Reg 5 000 791.77 791.76 791.77 3 959 Dow Chemical – 5% (18/10/2006) 10 000 1 000.00 1 049.30 1 040.56 10 416 10 Dutch Mor. Port. Loans (15.9.34) – O. Hip – Cl. B 8 500 000.00 500 850.00 500 000.00 4 006 6 EFG Ora Funding Ltd. – 2% – conv. (4/5/2005) 19 000 1 000.00 1 000.00 1 000.00 19 000 El Monte Int Finance – Float. Rate (12/12/2005) 5 000 1 000.00 998.48 1 002.35 4 996 Eneco Holding NV – 4.125% (10/6/2010) 2 500 1 000.00 996.72 991.92 2 492 13 Essent NV – 4.5% (25/06/2013) 2 500 1 000.00 996.05 978.79 2 491 44 Eurofima – PTE / 1994 – Float. Rate (17/08/2004) 2 632 000 4.99 4.99 4.98 13 128 21 Eurofima – PTE / 1995 – Float. Rate (19/01/2005) 6 000 000 4.99 4.99 4.98 29 928 78 Eurofima – PTE / 1998 – Float. Rate (28/05/2008) 1 564 4 987.98 4 987.98 4 957.55 7 801 48 Euro Vip – USD / 1990 – Float. Rate (23/11/2030) 6 000 792.00 791.77 577.99 4 751 1 282 FCE Bank Plc – Float. Rate (16/2/2005) 500 10 000.00 9 691.00 9 895.50 4 903 FCE Bank Plc – Float. Rate (18/2/2005) 5 000 1 000.00 1 004.50 1 010.90 5 013 FCE Bank Plc – Float. Rate (21/3/2006) 5 500 1 000.00 978.90 977.20 5 388 13 FCE Bank Plc – Float. Rate (28/6/2006) 17 000 1 000.00 966.40 977.25 16 487 Finbnk Trd & Div Pymt – Tr – Tv (15/03/2005) 5 000 385.00 527.47 373.08 1 922 57 Ford Motor Credit – Float. Rate (06/1/2006) 17 500 1 000.00 998.04 1 009.56 17 472 France Telecom – 5.4% (26/02/2005) 7 500 1 000.00 1 016.10 1 028.93 7 567 France Telecom – 7% (23/12/2009) 35 000 1 000.00 1 145.61 1 133.24 39 649 France Telecom – 7.25% (28/1/2013) 1 500 1 000.00 994.47 1 163.38 1 492 France Telecom – 8.25% (14/3/2008) 20 000 1 000.00 1 111.35 1 125.19 21 885 GENL Motors Accept Corp. – 4.625 (2/12/2004) 5 000 1 000.00 1 016.00 1 011.55 5 049 GENL Motors Accept Corp. – 5.5 (2/2/2005) 13 000 1 000 1 029.42 1 023.57 13 254 GENL Motors Accept Corp. – Float. Rate (5/7/2005) 24 000 1 000.00 1 001.95 1 015.55 24 039 Gie Suez Alliance – 4.25% (24/6/2010) 10 000 1 000.00 999.64 985.89 9 997 138 Gie Suez Alliance – 5.5% (20/2/2009) 5 000 1 000.00 1 079.00 1 059.48 5 356 58 GMAC Intl Finance BV – 5.375% (18/01/2005) 5 000 1 000.00 1 023.90 1 023.35 5 077 Goldman Sachs Group – PTE / 1997 – Float. Rate (24/04/2007) 10 000 498.80 498.80 492.46 4 988 63 Holcim Fin. Lux. – 4.375% (23/06/2010) 10 000 1 000.00 1 006.16 993.46 10 057 122 Imperial Tobacco Canada – 5.125% (14/11/2006) 17 500 1 000.00 1 036.24 1 038.75 18 014 Imperial Tobacco Finance – 5.75% (06/06/2005) 5 000 1 000.00 1 038.50 1 038.34 5 114
Consolidated financial statements | Notes 179 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Fixed income – other issuers (cont.) Issued by other foreign entities (cont.) Other bonds (cont.) Imperial Tobacco Finance – 6.375% (27/09/2006) 15 000 1 000.00 1 087.67 1 069.79 16 059 12 International Divers. Pay. Rig. DO – 6.75% (20/08/2010) 5 000 791.77 786.34 791.77 3 933 International Endesa BV – 4.375 (18/06/09) 10 000 1 000.00 988.70 1 011.34 9 902 International Endesa BV – 5.25 (22/02/06) 2 500 1 000.00 1 032.20 1 043.68 2 554 International Endesa BV – 5.375 (21/02/13) 7 500 1 000.00 992.00 1 043.30 7 445 Italease Finance Spa (10/03/2011) O. Hip. – Cl. A 5 000 1 000.00 998.90 998.30 4 996 5 K2 Corporation – Tx. Vr. (15/02/2013) 5 000 791.77 791.76 3 959 Koninklijke KPN NV – 7.25% (12/4/2006) 10 000 1 000.00 1 098.00 1 086.40 10 712 Lafarge – 5.448% (04/12/2013) 9 575 140 1.00 1.00 1.02 9 575 Lafarge – 5.875% (6/11/2008) 5 000 1 000.00 1 060.50 1 070.49 5 257 Lone Star Industr. Inc. 5.875% (8/11/2004) 5 000 1 000.00 995.02 1 020.00 4 996 Madison Avenue C. Ltd. (24/03/2014) – O. Hip. Cl. A 10 388 350.00 394 662.80 377 204.21 3 884 111 MBNA Europe Funding PLC – 4.5% (23/01/2009) 5 000 1 000.00 996.70 1 009.96 4 984 Metro AG – Float. Rate (29/5/2006) 10 000 1 000.00 1 000.00 1 010.40 10 000 MPS Capital Trust I – Perp. Bonds 6 200 1 000.00 1 042.20 1 166.06 6 417 Munich RE Finance BV – 6.75% (21/06/2023) 20 000 1 000.00 1 043.37 1 110.39 20 839 NGG Finance PLC – 5.25% (23/8/2006) 5 000 1 000.00 1 034.50 1 046.80 5 151 NGG Finance PLC – 6.125% (23/8/2011) 5 000 1 000.00 1 056.50 1 088.50 5 250 OTE PLC 10 000 1 000.00 982.38 1 070.40 9 912 OTE PLC – 5% (5/8/2013) 2 000 1 000.00 993.27 985.58 1 987 16 Pemex Proj. FDG Master Trust – 7.75% (02/08/2007) 5 000 1 000.00 1 119.00 1 087.50 5 516 78 Public Power Corp. – 6.25% (08/11/2010) 10 000 1 000.00 1 002.00 1 095.86 10 014 Renault S.A. – 4.625% (28/05/2010) 15 000 1 000.00 1 008.43 1 006.67 15 116 16 Renault S.A. – 6.125% (26/06/2009) 5 000 1 000.00 1 104.30 1 087.67 5 472 33 Repsol Intl.Finance – 3.75% (23/02/2004) 37 200 000.00 198 342.73 200 288.00 7 392 Repsol Intl.Finance – 5% (22/07/2013) 800 10 000.00 9 980.70 9 965.78 7 985 13 Sogerim – 6.125% (20/04/2006) 22 500 1 000.00 1 062.44 1 063.05 23 558 Standard Chartered Cap Trust – Perp. Bonds 10 000 1 000.00 1 028.50 1 179.32 10 230 Stichting Eurostar CDO (10/03/2013) O.H – Cl – A1 10 473 661.00 485 008.00 473 661.00 4 736 Tafisa, S.A. 80 60 100.16 60 101.21 4 808 TDC AS – 5.2% (28/01/2010) 10 000 1 000.00 1 030.00 1 039.47 10 271 TDC AS – 5.875% (24/04/2006) 10 000 1 000.00 1 054.80 1 057.65 10 394 Telecom Italia SPA – 5.625% (02/02/2007) 15 000 1 000.00 1 044.71 1 056.97 15 559 Telecom Italia SPA – 6.25% (01/02/2012) 7 500 1 000.00 1 045.03 1 087.03 7 801 Telefonica Europe – USD / 1997 – 5.125% (14/02/2013) 80 100 000.00 99 430.00 102 685.55 7 958 Telekom Finanzmanagement – 5% (22/07/2013) 600 1 000.00 1 000.00 1 002.91 595 UBB Divers. Pay. Rights Fin – T – (15/07/2009) 50 79 177.00 79 176.56 79 176.56 3 959 Union Fenosa Finance – 4.25% (02/11/2004) 35 100 000.00 99 957.14 101 325.00 3 499 Union Fenosa Finance – 5% (09/12/2010) 40 100 000.00 99 481.00 100 677.00 3 980 Union Fenosa Finance – 5.875% (26/06/2007) 100 100 000.00 103 045.00 106 153.20 10 240 UPM – Kymmene Corp – 6.125% (23/01/2012) 10 000 1 000.00 1 094.30 1 081.70 10 874 57 Volkswagen Int'l Fin – 4.125% (22/5/2009) 7 500 1 000.00 997.52 999.35 7 483 Zurich Finance (USA) – 5.75% (2/10/2023) 5 000 1 000.00 990.40 1 026.02 4 953 843 159 2 346 Commercial paper Brazcomp One – Votorantrad 16 000 16 000
180 Banco BPI | Annual Report 2003 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Variable income securities – issued by residents Shares Alar – Emp. Ibérica de Material Aeronautico, S.A. 2 200 5 9.02 20 Apis – Soc. Ind. Parquetes Azarujense 65 000 4.99 Banco Comercial Português 29 846 402 1.00 1.78 1.77 53 152 327 Boavista Futebol Clube 21 900 5.00 5.00 110 Brasopi – Comércio de Vestuário 649 420 1.00 3.99 2 591 1 944 Buciqueira – SGPS – Cap. Red. – Em. 2001 8 5.00 112.25 1 Caderno Verde – Comunicação 18 065 4.99 46.59 842 733 Caderno Verde – Comunicação (C) 43 905 1.00 2.85 125 109 Carmo & Braz 65 000 4.99 Casa Hipólito, S.A. 17 789 4.99 4.99 89 Change SGPS, S.A. 3 740 000 1.00 1.00 3 740 2 000 Cimpor – Cimentos de Portugal, S.A. 3 565 1.00 1.89 4.10 7 Companhia Águas da Fonte Santa de Monfortinho, S.A. 10 5.00 4.50 Companhia Aurifícia, S.A. 578 14.00 41.42 24 Companhia Aurifícia, S.A. 30 7.00 20.80 1 Companhia de Diamantes de Angola 167 716 2.49 Companhia de Fiação e Tecidos de Fafe, S.A. 240 4.99 1.25 Companhia Portuguesa do Cobre – Imobiliária, S.A. 57 200 4.99 0.07 4 Comundo – Consórcio Mundial de Import.e Export., S.A. 3 269 0.50 1.74 6 4 Corticeira Amorim – SGPS 127 419 1.00 2.47 1.15 315 168 Cosec 251 110 5.00 17.84 4 479 Empresa Cinematográfica S. Pedro – Águeda 100 4.99 4.99 Empresa O Comércio do Porto, S.A. 50 2.49 15.56 1 Esence – Soc. Nac. Corticeira – Nom. 54 545 4.99 Estamparia Império – Emp.Industriais e Imobiliários, S.A. 170 4.99 7.89 1 Eurofil – Ind. de Petróleos, Plástico e Filamentos, S.A. 11 280 4.99 2.21 25 Eurominas – Electro Metalurgia, S.A. 23 4.99 5.00 Fábricas Vasco da Gama – Ind. Transformadoras, S.A. 33 4.99 22.82 1 Fernando & Irmão, Lda. 32 190 100.00 100.00 3 219 Finantel, SGPS 3 335 840 0.50 2.19 7 305 5 430 Fit – Fomento e Industria do Tomate, S.A. 148 4.99 16.95 3 Foncar – Org. Industrial Com. Textil, S.A. 6 4.99 4.17 Futebol Clube do Porto 105 000 5.00 5.14 3.20 539 203 Gap – Gestão Agro-Pecuária, SGPS, S.A. 548 4.99 4.99 3 GEIE – Gestão de Espaços de Incub.Empres.S.A. 12 500 1.00 1.00 13 13 Gregório & Ca. 1 510 4.99 2.89 4 Impresa – SGPS 4 891 1.00 5.26 3.50 10 Incal – Indústria e Comércio de Alimentação, S.A. 2 514 1.13 0.89 2 Intersis, S.A. 42 147 4.99 31.01 1 307 1 307 Investimento Directo – Soc. Corretora, S.A. 300 000 10.00 12.43 3 729 845 J. Soares Correia – Armazéns de Ferro, S.A. 84 5.00 21.17 2 Jotocar – João Tomás Cardoso, S.A. 3 020 4.99 2.49 7 Lisnave – Est. Navais 180 5.00 4.99 1 Matur – Sociedade de Empreend. Tur. da Madeira, S.A. 13 435 5.00 10.85 146 142 Matur – Sociedade de Empreend. Tur. da Madeira, S.A. 4 5.00 Maxstor 8 190 4.99 4.99 41 41 Metalurgia Casal, S.A. 127 4.99 4.94 1 Multitema 405 379 1.00 1.34 542 186
Consolidated financial statements | Notes 181 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Variable income securities – issued by residents (cont.) Shares (cont.) Novabase, SGPS 447 0.50 5.62 5.90 3 Nutroton – Industrias da Avicultura 11 395 5.00 4.38 50 Pema, S.A. 532 3.25 0.07 Pirites Alentejanas, S.A. 178 1.00 0.03 Porto de Cavaleiros, SGPS 2 4.99 Portugal Telecom – N 4 080 1.00 14.04 7.98 57 25 Ricon 76 923 5.00 32.42 2 494 Salvador Caetano, Ind. Maq. e Veic. de Transp., S.A. 107 025 1.00 3.94 3.39 422 59 Salvor – Soc. Investimentos Hoteleiros, S.A. 10 5.00 Secca – Construções Metálicas – Ac. Ord. Em. 92 3 627 4.99 4.99 18 18 Secca – Pref. s/ Voto – Em. 92 3 627 4.99 4.99 18 18 Semapa – Soc. Inv. Gestão – SGPS – Stock Split 728 1.00 4.35 3.60 3 Senal – Soc. Nacional de Promoção de Empresas, S.A. 450 0.50 SIC – Soc. Independente de Comunicação 386 291 5.00 162.90 62 928 36 727 Sociedade de Construções ERG 50 4.99 7.38 0.90 Sociedade Industrial Aliança, S.A. 1 2.49 2.00 Somotel – Soc. Portuguesa de Moteis, S.A. 1 420 2.50 0.07 Sonae SGPS 51 868 1.00 2.55 0.66 132 98 Sopeal – Soc. Promoção Educacional Alcacerense, S.A. 100 4.99 4.99 Sorefame – Socs. Reunidas Fabricações Metálicas, S.A. 31 5.00 9.81 Sport Lisboa e Benfica (Pub.Geral) 16 010 5.00 4.99 80 Star – Turismo, S.A. 533 4.99 4.99 3 SVB, SGPS, S.A. 1 250 4.99 5.00 6 TECMIC 11 324 5.00 121.13 1 372 Telecine Moro, S.A. 170 4.99 6.48 1 1 Terologos – Tecnologias de Manutenção – P 7 960 4.99 4.99 40 Textil Lopes da Costa, S.A. 4 900 4.99 1.70 8 8 Turopa – Operadores Turisticos, S.A. 5 4.99 5.00 TVTEL – G.P. 191 250 4.98 7.18 1 374 910 Unicer – União Cervejeira, S.A. 1 002 1.00 8.07 8 Whatevernet 128 310 0.50 9.78 1 255 Xelb Cork – Co. e Ind. Cortiça 87 4.99 4.99 152 680 51 316 Participation units Fundo BPI – América 200 000 0 4.99 4.78 998 41 Fundo Grupo BFE Imobiliário 73 707 4.99 5.01 5.70 371 1 369 41 Other Atlântis – Pref. S/ Voto – Dir. Inc. / Em. 97 1 Banco Comercial Português – Dir. Inc. – Em. 01 – 2.ª 11 Banco Espírito Santo – Dir. Inc. – Em 2000 1 Oliva – Direitos de redução 100 0.45 Cimpor – Cim. Portugal – SGPS – Dir. Inc. – Em – 99 1 Fabricas Triunfo – Dir. reduçao Em. 2001 8 5.00 Soc. Construções Erg / 93 3 Somague – SGPS – Warrant (Obgs. 98) 115 015 0.29 Sonae Industria – SGPS – D.I. / Em. 97 – 2.ª 1
182 Banco BPI | Annual Report 2003 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Variable income securities – issued by non residents Shares Altitude Software 5 984 560 0.04 2.31 13 810 12 134 BPI Strategies, LTD. – Class B 5 000 0.01 791.77 808.84 3 959 Cis Corporation 39 512 4.49 4.67 0.10 129 125 European Investment Fund 6 1 000 000.00 1 000 000.00 6 000 Growela Cabo Verde 19 000 9.07 9.07 172 172 Liaoyang EFACEC 1 700 0.83 578.59 984 984 Sofaris 13 49.55 94.75 1 Unirisco Galicia 80 1 202.02 1 202.03 96 25 151 13 415 Preferred shares / Perp. Anglo Irish Cap Funding – 7.75% – Pref. Perp. 36 660 25 24.46 25.30 897 BBVA Cap Fund. Cayman – Pref. Perp. – 6.35% 52 800 51.13 44.99 50.45 2 376 BBVA International Ltd. – Pref. Perp. – 7% 50 000 100.00 98.43 104.25 4 921 BCH Eurocapital – Pref. B. – 97 / 2049 – Tx. Vr. 56 739 20.00 17.74 17.62 1 006 7 Central Hispano Euroc. – Acç. Pref. S/ voto – A 200 000 20.00 20.17 19.71 4 033 90 Deutsche BK Cap Fund III – Pref. Perp. 6.6% 100 000 100.00 101.35 101.50 10 135 Erste Finance (Jersey) – 6.625% Pref. Perp 101 820 25.00 23.11 24.15 2 353 Intesa BCI TIER1 FRN – Perp. 12 826 1 000.00 981.70 1 000.00 12 592 38 313 97 Participation units Fundo BPI – Europa (Luxemburgo) 23 405 7.32 171 Scudder New Europe Fund Inc. 10 000 9.90 99 270 Subordinated securities Axa – 6.75% (15/12/2020) 25 000 1 000 1 090.68 1 115.73 27 183 Banca Lombarda – Float. Rate (10/12/2012) 5 000 1 000.00 996.50 1 017.75 4 984 BNU – PTE / 1998 – Float. Rate (15/10/2008) – Ob. Cx. Sub. 947 716 004 0.01 0.01 0.01 9 477 190 K2 Corporation – Float. Rate – Pref. Perp 5 000 792.00 791.77 791.77 3 959 NBG Finance PLC – Float. Rate (25/06/2012) 17 500 1 000.00 997.98 1 008.00 17 469 Santander Central Hispano Iss – 5.25% (21/9/2011) 15 000 1 000.00 1 019.97 1 047.17 15 269 78 341 190 EQUITY INVESTMENTS Investments in associated companies Investments subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Aquapor – Serviços, S.A. 323 400 5.00 35.78 11 572 2 433 Auto-Estradas Atlantico II – Conc. Serviços 1 000 5.00 5.00 5 Auto-Estradas do Oeste – Conc. Rodov. 963 336 5.00 4.99 4 805 1 634 Banco Comercial e de Investimentos 96 429 0.33 0.47 7 342 Caravela Gest, SGPS, S.A. 108 572 5.00 4.99 542 200 Companhia de Seguros Allianz Portugal, S.A. 2 768 178 5.00 15.06 41 591 Cosec – Companhia de Seguros de Crédito, S.A. 750 000 5.00 9.40 12 507 F. Turismo – Capital de Risco, S.A. 250 000 5.00 4.99 1 332 Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 1 814 125 5.00 14.91 12 270 Sociedade Imobiliária Urbanização do Parque, S.A. 11 350 1.00 1.00 11 11 Telemanutenção – Assistência Remota e Computadores, S.A. 4 900 4.99 49.88 244 244 Vera Cruz Exportação – Indústria e Comércio, S.A. 689 145 0.27 0.81 558 558 Viacer – Sociedade Gestora de Participações Sociais, Lda. 15 859
Consolidated financial statements | Notes 183 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Investments in associated companies (cont.) Investments not subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Auto-Estradas Atlantico II – Conc. Serviços 1 000 5.00 5.00 5 Auto-Estradas do Oeste – Concessões Rodoviárias 2 000 5.00 5.00 10 3 Sociedade Imobiliária Urbanização do Parque, S.A. 2 670 1.00 1.00 3 3 108 656 5 086 Investments in subsidary companies excluded from consolidation Investments subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 BPI, Inc. 300 13.20 310 BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 200 000 7.24 4 776 BPI Strategies Ltd. 1 000 0.01 0.01 BPI Vida – Companhia de Seguros de Vida, S.A. 10 000 000 5.00 5.21 75 331 Promática – Sociedade Informação e de Organização de Empresas, S.A. 150 000 5.00 5.72 540 Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda. 1.00 80 957 Other investments Investments subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Portuguese financial entities Lisgarante – Soc. de Garantia Mútua 340 860 1.00 1.00 340 Norgarante – Soc. de Garantia Mútua 238 860 1.00 1.00 238 SPGM – Sociedade de Investimentos, S.A. – N 990 730 1.00 1.00 988 Other Portuguese companies Alberto Gaspar, S.A. 60 000 4.99 4.99 299 107 Ambelis – Agência p/ Modernização Economica de Lisboa, S.A. 400 49.88 49.88 20 7 Apor – Agência p/ Modernização do Porto – Cl. B 2 877 4.99 4.16 12 Arco Bodegas Unidas 63 382 6.01 69.41 4 399 294 Cofina SGPS 4 354 960 0.50 2.76 2.37 12 018 Coimbravita – Agência Desenvolvimento Regional 15 000 4.99 4.99 75 Conduril – Construtora Duriense, S.A. 184 262 5.00 4.37 4.50 806 Digitmarket – Sistemas de Informação, S.A. 742 500 1.00 1.00 764 727 EIA – Ensino, Investigação e Administração, S.A. 10 000 4.99 4.99 50 16 FIEP – Fundo para a Internacionalização das Empresas Portuguesas SGPS, S.A. 3 900 000 4.99 4.99 19 465 Gestinsua – Aq. Al. Patrimonio 430 5.00 5.00 2 2 Ibersol – SGPS, S.A. 1 265 930 1.00 4.30 3.69 5 444 Impresa – SGPS 8 610 801 1.00 9.02 2.84 63 306 11 753 International Factors Group 12 50.00 50.00 1 Margueira – Sociedade Gestora de Fundos Investimento Imobiliário, S.A. 3 362 5.00 4.99 17 Mimalha, S.A. 40 557 4.99 8.27 336 336 NET – Novas Empresas e Tecnologias, S.A. 6 099 4.99 0.52 3 Pararede – SGPS, S.A. 4 811 910 0.20 1.44 0.22 6 951 3 053 PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 261 250 5.00 4.99 1 303 PME Investimentos – Sociedade de Investimentos S.A. 261 250 5.00 4.99 1 303 Portugal Telecom, S.A. 20 743 391 1.00 10.76 6.90 223 197 18 637 Primus – Prom. e Desenvolvimento Regional, S.A. 8 000 4.99 4.99 40 25 Sanjimo – Sociedade Imobiliária 1 620 4.99 4.99 8 8 SIBS – Sociedade Interbancária de Serviços, S.A. 738 455 5.00 4.22 3 115 SIC – Sociedade Independente de Comunicação, S.A. 1 196 989 5.00 162.90 146 278 23 413 Soc. Portuguesa de Inovação, Consultoria Empresarial e Fomento da Inovação, S.A. 3 980 5.00 4.99 20 1 Sodera – Investimentos e Projectos 812 500 0.01 0.01 8
184 Banco BPI | Annual Report 2003 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Other investments (cont.) Investments subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 (cont.) Other Portuguese companies (cont.) Soset – Sociedade Desenvolvimento Regional Peninsula Setúbal, S.A. 68 000 4.99 4.99 339 198 Spidouro – Soc. Promoção e Investimento Douro e Tras-os-Montes 15 000 4.99 4.99 75 54 SUBLOC – Locação de submarinos, S.A. 2 500 10.00 10.00 25 2 Tagusparque – Soc. de Promoção e Desenvolvimento do Parque, S.A. 480 000 5.00 4.99 2 394 Unicre – Cartão Internacional de Crédito 299 265 5.00 3.53 1 057 VAA – Vista Alegre Atlantis SGPS (Merge) 8 391 597 1.00 1.43 0.73 12 036 1 641 VAA – Vista Alegre Atlantis SGPS (St.Split.) 988 485 1.00 2.71 0.76 2 680 902 ViaLitoral – Conc. Rodoviária da Madeira 4 750 161.25 166.64 792 102 Other foreign companies CLD – Credit Logement Developpment 100 15.24 15.25 2 Club Financiero Vigo 1 17 730.00 18 6 Empresa Interbancaria de Serviços 7 000 10.12 56 InterBancos 100 0.72 Nasdaq Europe SA / VN 100 49.96 250.32 25 21 Swift – Society for Worldwide Inf. Dev 47 123.95 341.36 36 Tharwa Finance (dirhams) 20 895 9.05 9.05 189 510 530 61 305 Investments not subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Other Portuguese companies Cofina SGPS – Em. 2003 (Conv. War.) 43 400 0.05 1.75 2.37 76 Garval – Sociedade de Garantia Mutua 58 700 1.00 1.00 59 IES – SGPS 110 000 4.99 14.95 1 645 187 Margueira – Sociedade Gestora de Fundos Investimento Imobiliário, S.A. 149 5.00 4.99 1 NET – Novas Empresas e Tecnologias, S.A. 4 440 4.99 5.00 22 Pararede – SGPS – Cap. Red. – Em. 2003 21 926 530 0.20 0.20 0.22 4 385 Plastrade 19 200 5.00 5.00 96 SDEM – Soc. de Desenvolvimento Empr. Madeira, SGPS 937 500 1.00 1.00 938 SIC – Soc. Independente de Comunicação 900 750 5.00 22.20 20 000 VAA – Vista Alegre Atlantis – Merge 237 513 1.00 0.73 0.73 173 Other foreign companies Euronext 130 000 1.00 20.65 21 2 684 Swift – Society for Worldwide Inf. Dev 13 123.95 1 950.00 25 30 104 187 540 634 61 492 Other financial assets Surety bonds 363 Subordinated loans 128 Supplementary capital contributions: Plastrade 154 Shareholder´s loan contracts: Auto Estradas do Oeste, S.A. 11 Caderno Verde 167 145 Caravela Gest SGPS 1 354 500 Digitmarket 879 Empresa Interbancária de Serviços 48 GEIE – GESTÃO DE ESPAÇOS DE INCB. 23 23 Intersis 50 50 Maxstor – Suportes e Matrizes Informáticos, S.A. 973 957
Consolidated financial statements | Notes 185 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Other investments (cont.) Shareholder´s loan contracts: Multitema 245 54 Propaço – Imobiliária de Paço d' Arcos 5 112 3 015 Sociedade Imobiliária Urbanização do Parque, S.A. 136 SVB SGPS, S.A. 2 301 ViaLitoral – Conc. Rodoviária da Madeira 1 069 12 368 4 744 Others Investments subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Amsco – African Management Services Com 1 807 791.77 438.17 792 792 Associação para Escola Gestão do Porto / 2000 2 24 939.89 50 17 Citeve – Cent. Tec. Ind. Tex. Vest. Portugal 20 498.80 10 Frie Inter-Risco 120 24 939.89 24 939.89 2 993 1 501 Frie – PME Capital 115 24 939.89 24 939.90 2 868 1 336 Frie – PME Capital – Retex 40 24 939.89 24 939.90 997 132 Fun. Cap. Risco P/ Inv. Qual – API CAPITAL II 40 4 987.98 4 987.98 200 25 Fun. Cap. Risco Invest. Qual – PME Inv. 40 24 939.89 24 939.90 997 193 Fun. Cap. Risco P/ Invest. Qual – PME Inv. 115 24 939.89 24 939.90 2 868 628 Fundo Inv. Capital de Risco – F. Turismo 43 24 939.89 25 222.91 1 085 183 Fundo Inv. Imobiliário Margueira Cap. 2 949 761 4.99 4.99 14 713 Parque Industrial da Matola – MZM 295 384 0.03 0.03 10 Parque Industrial da Matola – PTE 10 384 620 0.00 52 14 Investments not subjected to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Fundo Caravela 2 000 5 000.00 5 000.00 10 000 Fundo Inv. Capital de Risco – F. Turismo 84 24 939.89 20 610.83 1 731 Fundo Inv. Imobiliário Margueira Cap. 130 730 4.99 4.99 652 Propaço – Soc. Imob. De Paço D' Arcos 1.00 1.00 1 40 019 4 821 53 032 9 565
186 Banco BPI | Annual Report 2003 At 31 December, 2003, the book and market values (or estimated values, if market values do not exist) of the main investments owned by the BPI Group were:
Book value Unrealised Market Estimated 2 Gain / Gross Deferred Provisions Net value4 value5 gains3 (Loss) Investments in associated companies Aquapor-Serviços,S.A. 11 572 2 433 9 139 3 754 (5 385) Auto-Estradas Oeste 4 815 1 637 3 178 (3 178) Auto-Estradas Atlantico II – Conc. Serviços 10 10 15 5 Caravela Gest, SGPS, S.A. 542 200 342 253 (89) Sociedade Imobiliária Urbanização do Parque, S.A. 14 14 15 15 Telemanutenção – Assistência Remota e Computadores, S.A. 244 244 36 36 Vera Cruz Exportação – Indústria e Comércio, S.A. 558 558 Viacer – Sociedade Gestora de Participações Sociais, S.A.1 15 859 15 859 130 000 114 141 33 614 5 086 28 528 134 073 105 545 Other investments Alberto Gaspar, S.A. 299 107 192 472 280 Ambelis – Agência p/ Modernização Economica de Lisboa, S.A. 20 7 13 (13) Apor – Agência p/ Modernização do Porto 12 12 44 32 Arco Bodegas Unidas,S.A. 4 399 294 4 105 3 003 (1 102) Associação NASDAQ 25 21 4 (4) CLD – Credit Logement Developpment 2 2 3 1 Club Financiero Vigo 18 6 12 (12) Cofina, SGPS, S.A. 13 379 1 285 12 094 10 412 (1 682) Coimbravita – Agência Desenvolvimento Regional 75 75 87 12 Conduril – Construtora Duriense, S.A. 806 806 829 23 Digitmarket – Sistemas de Informação, S.A. 742 (22) 727 37 23 (14) EIA – Ensino, Investigação e Administração, S.A. 50 16 34 2 (32) Empresa Interbancária de Serviços 56 56 92 36 Euronext 2 684 2 684 2 741 57 FIEP – Fundo para a Internacionalização das Empresas Portuguesas SGPS, S.A. 19 465 19 465 30 535 11 070 Garval – Sociedade de Garantia Mutua 59 59 88 29 Gestinsua – Aq.Al.Patrimonio 2 2 Ibersol,SGPS,S.A. 5 475 31 5 444 4 677 (767) IES – Indústria,Engenharia e Serviços, SGPS, S.A. 1 645 187 1 458 930 (528) Impresa – Sociedade Gestora de Participações Sociais,S.A. 77 694 14 388 11 753 51 553 24 427 (27 126) InterBancos International Factors Group 1 1 (1) Lisgarante 340 340 513 173 Margueira – Sociedade Gestora de Fundos Investimento Imobiliário, S.A. 18 18 22 4 Mimalha, S.A. 336 336 NET – Novas Empresas e Tecnologias, S.A. 25 25 73 48 Norgarante 238 238 353 115 ParaRede,SGPS,S.A. 14 466 3 130 3 053 8 283 5 981 (2 302) Plastrade – Comércio Internacional Plásticos, S.A. 96 96 449 353 PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 1 303 1 303 1 683 380 PME Investimentos – Sociedade de Investimentos S.A. 1 303 1 303 1 395 92 Portugal Telecom,S.A. 223 197 18 637 204 560 143 126 (61 434) Primus – Prom. e Desenvolvimento Regional, S.A. 40 25 15 23 8 Sanjimo – Sociedade Imobiliária 8 8 SDEM – Sociedade de Desenvolvimento de Empresas da Madeira, SGPS 938 938 1 391 453 SIBS – Sociedade Interbancária de Serviços, S.A. 3 115 3 115 11 395 8 280 SIC – Sociedade Independente de Comunicação,S.A. 214 994 48 716 23 413 142 865 115 322 (27 543) Soc. Portuguesa de Inovação, Consultoria Empresarial e Fomento da Inovação, S.A. 20 1 19 15 (4) Sodera – Sociedade de Desenvolvimento Regional do Alentejo, S.A. 8 8 76 68 Soset – Sociedade de Desenvolvimento Regional Peninsula Setubal, S.A. 339 198 141 213 72 SPGM – Sociedade de Investimentos 988 988 1 661 673 Spidouro – Sociedade Promoção e Investimento Douro e Tras-os-Montes 75 54 21 31 10 SUBLOC – Locação de submarinos, S.A. 25 2 23 16 (7) Swift – Society for Worldwide Inf. Dev 61 61 136 75 Tagusparque – Sociedade de Promoção e Desenvolvimento do Parque, S.A. 2 394 2 394 8 361 5 967 Tharwa Finance 189 189 284 95 Unicre – Cartão Internacional de Crédito 1 421 364 1 057 6 098 5 041 VAA – Vista Alegre Atlantis,SGPS,S.A. (Merge) 11 433 (776) 1 641 10 568 6 302 (4 266) VAA – Vista Alegre Atlantis,SGPS,S.A. 3 295 615 902 1 778 729 (1 049) ViaLitoral – Conc. Rodoviária da Madeira 792 102 690 1 035 345 608 365 67 731 61 492 479 142 199 225 185 824 (94 093) 641 979 67 731 66 578 507 670 199 225 319 897 11 452 1) The investment in Viacer – Sociedade Gestora de Participações Sociais, S.A. is included within the BPI Group. 2) The gross book value corresponds to acquisition cost or, in the case of investments recorded based on the equity method, to BPI’s percentage of the company’s equity value. 3) The deferred gains should be deducted from the gross book value, as those amounts were not recognized in the income statement. 4) The market value corresponds to the average of the last six months daily market values for listed investments. 5) Except for Viacer – Sociedade Gestora de Participações Sociais, S.A. and SIC – Sociedade Independente de Comunicação, S.A., the estimated value corresponds to the BPI percentage on the company’s equity value multiplied by the factor 1.5. The estimated value of Viacer corresponds to a BPI’s valuation. The estimated value of SIC depends on Impresa’s market value and corresponds to the percentage of the value attributed to SIC in the value of that company, according to a BPI’s valuation.
Consolidated financial statements | Notes 187 4. NOTES
4.1. Cash and deposits at central banks 4.3. Other loans and advances to credit institutions This caption is made up as follows: This caption is made up as follows:
2003 2002 2003 2002
Cash 162 352 152 525 Placements with central banks Demand deposits at the Bank of Portugal 311 941 310 569 Bank of Portugal Demand deposits at foreign central banks 77 313 61 012 Deposit certificates 94 051 186 638 551 606 524 106 Other 4 172 94 051 190 810 The caption DEMAND DEPOSITS AT THE BANK OF PORTUGAL includes Placements with other monetary institutions deposits made to comply with the minimum cash reserve Interbank money market 44 000 requirements of the European Central Bank System (ECBS). Other 40 016 100 087 These deposits bear interest and correspond to 2% of the 40 016 144 087 amount of Customers’ deposits and debt securities maturing in Placements with other credit institutions up to 2 years, excluding deposits and debt securities of entities Domestic 323 141 619 878 subject to the ECBS minimum cash reserves regime. Abroad 1 944 105 2 213 205 2 267 246 2 833 083 2 401 313 3 167 980 4.2. Loans and advances to credit institutions repayable Loans and interest in arrears 83 016 100 019 on demand Provisions for loans and interest in arrears (82 922) (99 790) This caption is made up as follows: Provisions for country risk (20) (28)
2003 2002 (82 942) (99 818) 2 401 387 3 168 181 Domestic credit institutions Demand deposits 5 375 30 869 Cheques for collection 313 199 180 631 The deposit certificates correspond to deposits at the Bank of Other 12 944 12 295 Credit institutions abroad Portugal, in dematerialised form, subscribed for in amounts Demand deposits 145 311 98 112 established by the Central Bank under the process of change in Cheques for collection 6 537 8 158 the regime of minimum cash reserves that came into force on Other 11 1 November, 1994. At 31 December, 2003 and 2002 these 483 377 330 065 certificates earned interest at annual rates of 2.05% and 3.28%, respectively. Cheques for collection from domestic credit institutions correspond to cheques drawn by third parties against domestic The caption LOANS AND INTEREST IN ARREARS refers to loans to credit institutions, which in general do not remain in this a Central Bank. account for more than one business day. The movement in the provisions during 2003 and 2002 is shown in note 4.27.
At 31 December, 2003 and 2002 this caption is made up as follows, by residual period to maturity:
2003 2002
Up to 3 months 1 834 935 2 510 173 From 3 months to 1 year 418 542 339 304 From 1 year to 5 years 127 655 300 385 More than 5 years 11 804 Undefined 20 181 6 314 2 401 313 3 167 980 Note: Does not include overdue loans and interest.
188 Banco BPI | Annual Report 2003 4.4. Loans and advances to Customers This caption is made up as follows: The movement in the provisions during 2003 and 2002 is shown in note 4.27. 2003 2002
Short-term loans At 31 December, 2003 and 2002 this caption is made up as Domestic Discount 372 685 370 923 follows, by residual period to maturity: Loans and advances covered by notes 205 945 307 050 2003 2002 Credits in current accounts 2 438 499 2 709 102 Up to 3 months 2 312 489 2 416 919 Demand deposits – overdrafts 627 348 521 559 From 3 months to 1 year 1 940 930 2 266 076 Invoices received – factoring 364 983 305 682 From 1 year to 5 years 3 105 592 2 892 975 Other loans and advances 72 284 7 212 More than 5 years 9 677 695 8 393 941 Foreign 208 524 257 766 Undefined 507 142 391 255 4 290 268 4 479 294 17 543 848 16 361 166 Medium and long term loans Domestic Note: Does not include overdue loans and interest. Discount 25 089 23 111 Loans Real estate 6 418 219 5 537 166 Others 4 567 273 4 228 502 Loans and advances covered by notes 25 540 15 186 Credits in current accounts 151 367 174 738 Other loans and advances 1 873 1 874 Foreign 782 405 884 484 11 971 766 10 865 061 Financial leasing 797 101 594 348 Real estate leasing 470 285 401 945 Subordinated loans 11 223 19 892 Placement of consigned resources 3 205 626 17 543 848 16 361 166 Loans and interest in arrears 239 167 254 028 Provisions for doubtful debts (25 586) (21 383) Provisions for loans and interest in arrears (118 333) (120 077) Provisions for country risk (750) (1 142) (144 669) (142 602) 17 638 346 16 472 592
Consolidated financial statements | Notes 189 4.5. Bonds and other fixed income securities This caption is made up as follows:
Book value Market value
2003 2002 2003 2002 A. Issued by government entities Listed securities Trading securities Bonds issued by Portuguese government entities Fixed rate 27 190 302 460 27 190 302 460 Bonds issued by foreign governments entities 1 091 002 1 081 566 1 091 002 1 081 566 Investment securities Bonds issued by Portuguese government entities Fixed rate 597 313 723 767 615 101 742 725 Floating rate 949 949 Bonds issued by foreign governments entities 40 068 36 307 40 154 37 385 Provisions for unrealised losses on securities (2) 1 755 573 2 145 047 1 773 447 2 165 085 B. Issued by other entities Listed securities Trading securities Bonds issued by international financial organisations 16 128 16 128 Bonds issued by other foreign entities 10 243 10 243 Investment securities Bonds issued by other domestic entities 40 257 69 298 40 019 68 246 Bonds issued by international financial organisations 42 529 42 530 42 406 41 811 Bonds issued by other foreign entities 834 392 310 304 847 550 311 180 Subordinated debt securities 78 341 9 477 79 576 9 184 Provisions for unrealised losses on securities (3 104) (4 836) 1 018 786 426 773 1 035 922 430 421 Unlisted securities Trading securities Bonds issued by other foreign entities 574 Investment securities Bonds issued by other domestic entities 142 386 141 068 Bonds issued by international financial organisations 117 459 Bonds issued by other foreign entities 24 767 24 641 Provisions for unrealised losses on securities (346) 167 153 283 396 Provisions for country risk (409) Securities and interest in arrears 195 2 358 Provisions for securities and interest in arrears (195) (341) 0 2 017 1 185 939 711 777
At 31 December, 2003 and 2002 the investment portfolio The movement in the provisions during 2003 and 2002 caption BONDS ISSUED BY OTHER DOMESTIC ENTITIES – UNLISTED is shown in note 4.27. includes th. euro 139 036 and th. euro 137 208, respectively, relating to commercial paper. At 31 December, 2003 and 2002 the investment portfolio caption BONDS ISSUED BY OTHER FOREIGN
ENTITIES – UNLISTED includes th. euro 16 000 and th. euro 19 833, respectively, relating to commercial paper.
190 Banco BPI | Annual Report 2003 4.6. Shares and other variable yield securities This caption is made up as follows:
Book value Market value
2003 2002 2003 2002 Listed securities Trading securities Shares 38 554 10 004 39 255 10 017 Participating units 382 462 382 462 Value fluctuations 706 13 Provisions for unrealised losses on securities (4) Investment securities Shares 58 728 9 707 57 826 7 886 Preference shares 38 313 68 284 39 181 66 629 Other participating units 1 369 490 1 377 601 Provisions for unrealised losses on securities (1 143) (3 728) 136 905 85 232 138 021 85 595 Unlisted securities Trading securities Shares 62 607 Investment securities Shares 119 103 58 924 Participating units in FRIEs 10 225 Other participating units 270 3 990 Provisions for unrealised losses on securities (63 726) (71 278) 55 647 64 468 192 552 149 700
The movement in the provisions during 2003 and 2002 is shown in note 4.27.
At 31 December, 2003 the participating units in FRIEs are reflected in the OTHER FINANCIAL ASSETS caption (note 4.12.).
4.7. Investments in associated companies This caption is made up of investments in the following companies:
Effective participation (%) Book value (net)
2003 2002 2003 2002
Aquapor – Serviços, S.A.1 24.5 24.5 9 139 11 070 Auto-Estradas do Oeste S.A.2 20.0 3 178 Auto-Estradas do Atlântico II, S.A. 20.0 10 Banc Post S.A.3 17.0 17 424 Banco Comercial e de Investimentos, S.A.R.L. 30.0 7 342 Caravela Gest, SGPS, S.A. 16.7 16.7 342 542 Companhia de Seguros Allianz Portugal, S.A. 35.0 35.0 41 591 37 734 Cosec – Companhia de Seguros de Crédito, S.A. 50.0 50.0 12 507 11 610 F. Turismo – Capital de Risco, S.A. 25.0 25.0 1 332 1 338 Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 32.8 32.8 12 270 11 807 Sociedade Imobiliária Urbanização do Parque, S.A.4 28.0 Telemanutenção – Assistência Remota a Computadores, S.A.4 22.8 22.8 122 Vera Cruz Exportação – Indústria e Comércio, S.A.4 20.9 20.9 Viacer – Sociedade Gestora de Participações Sociais, Lda. 26.0 26.0 15 859 15 314 103 570 106 961 Note: The book value of the associated companies of the BPI Group (note 1) corresponds to the amount of the investment valued under the equity method. 1) This investment was excluded from the consolidation because the BPI Group holds a put option. 2) This investment was excluded from the consolidation because there are prospects for transactions relating to this company’s capital to be carried out, which will result in the BPI Group’s participating interest being less than 20%. 3) This investment was sold during 2003. 4) This investment is fully provided for.
Consolidated financial statements | Notes 191 The movement in the provisions during 2003 and 2002 is shown in note 4.27.
At 31 December, 2003 the balances relating to operations with associated companies were as follows:
Loans granted 95 679 Debtors 379 Deposits 25 361 Creditors 92 Guarantees provided 4 389
4.8. Investments in subsidiary companies excluded from the consolidation The investments in subsidiary companies excluded from the consolidation correspond to:
Effective participation (%) Book value (net)
2003 2002 2003 2002 BPI, Inc. 100.0 100.0 310 117 BPI Locação de Equipamentos, Lda.1 100.0 BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 100.0 100.0 4 776 4 758 BPI Rent – Comércio e Aluguer de Bens, Lda.2 100.0 4 596 BPI Strategies, Ltd. 100.0 100.0 BPI Vida – Companhia de Seguros de Vida, S.A. 100.0 100.0 75 331 34 196 Douro – Sociedade Gestora de Participações Sociais, S.A.1 100.0 3 797 Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A.1 100.0 470 Promática – Sociedade de Informação e de Organização de Empresas, S.A. 100.0 100.0 540 1 065 Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda.3 100.0 100.0 80 957 48 999 Note: The book values of the subsidiary companies of the BPI Group (note 1) correspond to the amount of the investments valued under the equity method. 1) At 31 December, 2003 this investment was consolidated by the full consolidation method. 2) At 30 June, 2003 this investment was consolidated by the full consolidation method. 3) The amount of this investment for consolidation purposes is null, as there is a provision (in the caption OTHER PROVISIONS – OTHER RISKS) to cover the accumulated losses of the company.
At 31 December, 2003 the balances relating to operations with 4.9. Other investments subsidiary companies not consolidated by the full consolidation This caption is made up as follows: method were as follows: 2003 2002 Loans granted 24 010 Listed securities Deposits 7 818 Shares 333 756 341 678 Creditors 21 333 756 341 678 Garantees provided 3 Unlisted securities Shares 206 878 167 358 206 878 167 358 540 634 509 036 Provisions for unrealised losses on other investments (61 492) (23 872) 479 142 485 164
192 Banco BPI | Annual Report 2003 The movement in the provisions during 2003 and 2002 is shown in note 4.27. At 31 December, 2003 and 2002 this caption was made up as follows:
Effective participation (%) Book value (net)
2003 2002 2003 2002 Arco Bodegas Unidas 1.8 1.8 4 105 4 350 B.A. – Fábrica de Vidros Barbosa & Almeida, S.A.1 14.5 16 039 Cofina, SGPS, S.A. 8.6 8.7 12 094 11 907 Conduril – Construtora Duriense, S.A. 7.7 7.7 806 805 Euronext 0.1 0.2 2 684 3 924 FIEP – Fundo para a Internacionalização das Emp. Portuguesas SGPS, S.A.2 19.5 19 465 Ibersol – SGPS, S.A. 6.3 6.3 5 444 5 373 IES – Indústria, Engenharia e Serviços, SGPS, S.A. 4.6 13.3 1 458 1 327 Impresa – Sociedade Gestora de Participações Sociais, S.A. 10.3 10.3 51 553 57 489 Pararede – SGPS, S.A. 12.2 3.8 8 283 3 898 PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 4.8 4.8 1 303 1 303 PME Investimentos – Sociedade de Investimentos, S.A. 4.8 4.8 1 303 1 303 Portugal Telecom, S.A. 1.7 1.7 204 560 216 899 SIBS – Sociedade Interbancária de Serviços, S.A. 15.0 15.0 3 115 3 115 SIC – Sociedade Independente de Comunicação, S.A.3 34.9 19.9 142 865 137 497 S.P.G.M. – Sociedade de Investimentos, S.A. 13.2 15.5 988 1 932 Tagusparque, S.A. 11.0 11.0 2 394 2 394 Unicre – Cartão Internacional de Crédito, S.A. 17.6 17.6 1 057 1 057 VAA – Vista Alegre Atlantis, SGPS, S.A. 16.5 16.6 12 346 13 420 ViaLitoral – Concessão Rodoviária da Madeira2 4.8 690 SDEM – Sociedade de Desenvolvimento de Empresas da Madeira, SGPS2 18.8 938 Other 1 691 1 132 479 142 485 164 Note: This table shows all investments with a book value, net of provisions, over th. euro 500. 1) This investment was sold during the second half of 2003, as a result of a general public share purchase offering. 2) At 31 December, 2002 this investment was reflected in the OTHER FINANCIAL ASSETS caption. 3) During 2003 Banco BPI acquired an additional participation of 15% in the share capital of SIC. BPI is temporarily authorised to keep this investment recorded at cost, net of provisions. At 31 December, 2003 the BPI Group also had a participation of 6.4% in the share capital of that company reflected in the investment portfolio.
Consolidated financial statements | Notes 193 4.10. Intangible assets This caption is made up as follows:
Gross
Balances at Transfers and Balances at 31-12-02 Additions Disposals others 31-12-03 Leasehold rights 578 (97) 481 Start-up expenses 13 003 221 (9) (712) 12 503 Deferred costs 3 846 (92) 3 754 Research and development expenses 22 312 13 22 325 Software 51 006 1 313 (84) 542 52 777 Other intangible assets 13 132 1 589 (2) 875 15 594 103 877 3 123 (95) 529 107 434 Work in progress 242 1 919 (1 806) 355 104 119 5 042 (95) (1 277) 107 789
4.11. Tangible fixed assets This caption is made up as follows:
Gross
Balances at Transfers and Balances at 31-12-02 Additions Disposals others 31-12-03 Premises Premises for own use 203 337 1 560 11 342 216 239 Other premises 6 679 29 (1 485) 2 784 8 007 Leasehold improvements 82 260 2 589 (7) 3 995 88 837 Work in progress Premises for own use 2 664 4 553 (3 522) 3 695 Other premises Leasehold improvements 3 090 6 794 (3 670) 6 214 298 030 15 525 (1 492) 10 929 322 992 Equipment Furnitures and fixtures 37 866 3 571 (1 050) 174 40 561 Machinery and tools 14 792 722 (2 493) (209) 12 812 Computer hardware 123 512 5 481 (2 224) 2 739 129 508 Interior installations 64 460 853 (41) 10 825 76 097 Vehicles 18 389 9 790 (2 923) (8 249) 17 007 Security equipment 16 370 1 479 (44) 574 18 379 Other equipment 249 1 148 (1) (1 118) 278 275 638 23 044 (8 776) 4 736 294 642 Other fixed assets Art collections 1 969 325 (18) 135 2 411 Other leased assets 1 677 1 677 Operational leased assets 3 632 9 031 12 663 Others 14 335 97 (4) 19 14 447 17 981 4 054 (22) 9 185 31 198 Work in progress Equipment 7 759 21 880 (13 470) 16 169 Other fixed assets 59 107 (69) 97 Advances on account of fixed assets 21 900 8 986 (23 558) 7 328 29 718 30 973 (37 097) 23 594 621 367 73 596 (10 290) (12 247) 672 426
194 Banco BPI | Annual Report 2003 Amortisation Net
Saldo em Amortisation for Disposals Transfers and Balances at Balances at Balances at 31-12-02 the year others 31-12-03 31-12-03 31-12-02 124 134 58 316 165 454 12 538 239 (9) (462) 12 306 197 465 3 329 296 (21) 3 604 150 517 17 618 2 930 20 548 1 777 4 694 43 408 4 659 (84) 4 47 987 4 790 7 598 11 613 824 (2) (27) 12 408 3 186 1 519 88 630 9 082 (448) 97 169 10 265 15 247 355 242 88 630 9 082 (448) 97 169 10 620 15 489
Amortisation Net
Balances at Amortisation for Disposals Transfers and Balances at Balances at Balances at 31-12-02 the year others 31-12-03 31-12-03 31-12-02
63 344 3 538 (595) 66 287 149 952 139 993 1 850 124 (493) 397 1 878 6 129 4 829 49 521 7 229 (6) 473 57 217 31 620 32 739
3 695 2 664
6 214 3 090 114 715 10 891 (499) 275 125 382 197 610 183 315
26 578 2 669 (1 008) 69 28 308 12 253 11 288 12 360 947 (2 487) (78) 10 742 2 070 2 432 103 976 11 155 (1 995) (205) 112 931 16 577 19 536 39 877 4 251 (39) 150 44 239 31 858 24 583 11 997 3 273 (2 491) (201) 12 578 4 429 6 392 11 047 1 695 (40) (21) 12 681 5 698 5 323 216 12 (1) 28 255 23 33 206 051 24 002 (8 061) (258) 221 734 72 908 69 587
2 411 1 969 1 077 580 1 657 20 600 1 203 (2) 1 201 11 462 8 447 1 253 (4) 8 9 704 4 743 5 888 9 524 3 036 (4) 6 12 562 18 636 8 457
16 169 7 759 97 59 7 328 21 900 23 594 29 718 330 290 37 929 (8 564) 23 359 678 312 748 291 077
Consolidated financial statements | Notes 195 4.12. Other assets 4.13. Accruals, deferrals and others (assets) This caption is made up as follows: This caption is made up as follows:
2003 2002 2003 2002
Gold, precious metals and coin collections 1 644 1 321 Accrued income Other available funds 76 83 From placements with credit institutions 3 526 9 366 Debtors From loans 51 661 67 879 Loan interest subsidy receivable 31 361 44 612 From securities 39 934 35 888 BPI Taxa Garantida advances 21 921 37 168 From foreign exchange and interest rate swaps 286 275 360 559 Loans ceded to Finangeste 7 515 Revaluation of Capital Seguro and Risco Limitado bonds 72 860 Taxes recoverable 11 136 10 962 Others 30 422 41 537 Others 29 185 22 197 411 818 588 089 Property received as settlement of defaulting loans Deferred costs Real estate 35 020 35 002 Debt securities 15 231 6 939 Others 4 274 3 062 Advertising campaigns 11 217 9 527 Margins on futures and options operations 10 641 1 857 Contributions to the pension funds 162 075 90 835 Other placements 26 323 17 187 Premiums on options relating to Capital Other financial assets 53 032 84 655 Seguro operations 36 527 61 676 224 613 265 621 Swaps operations 535 8 305 Provisions for doubtful debtors (19) (55) Other off-balance sheet operations 2 37 Provisions for property received as settlement Others 24 014 9 408 of defaulting loans (5 490) (7 238) 249 601 186 727 Provisions for unrealised losses on other financial assets (9 565) (6 646) Valuation fluctuations (15 074) (13 939) Pension funds 25 637 120 390 209 539 251 682 Other 358 243 Other accounts Antecipated dividends on preference shares 8 248 9 568 Other financial assets owned by the BPI Group at 31 December, Stock exchange operations pending settlement 0 3 148 2003 are shown in note 3.3. Other operations pending settlement 53 945 45 593 Revaluation of options relating to Capital Seguro operations 7 181 4 928 The movement in the provisions during 2003 and 2002 is Others 3 497 6 504 shown in note 4.27. 98 866 190 374 760 285 965 190
At 31 December, 2003 and 2002 the deferred costs caption
ADVERTISING CAMPAIGNS results from the following:
2003 2002
Balance at beginning of the year 9 527 18 603 Expenses incurred during the year 11 462 3 809 Amortisation recorded during the year (9 767) (12 885) Change of Banco de Fomento Mozambique's consolidation method (5) Balance at end of the year 11 217 9 527
196 Banco BPI | Annual Report 2003 At 31 December, 2003 and 2002 the deferred costs caption 4.14. Amounts owed to credit institutions
CONTRIBUTIONS TO THE PENSION FUNDS includes the following This caption is made up as follows: balances (note 4.20): 2003 2002
2003 2002 Repayable on demand Increased liability due to early retirements 138 513 87 027 Domestic 17 849 31 133 Losses resulting from differences between the Foreign 11 199 14 615 actuarial and financial assumptions used 29 048 45 748 and the actual amounts1 75 65 Term or notice Losses from changes in the actuarial assumptions2 3 486 2 204 Term deposits of the Bank of Portugal 20 289 Excess coverage of the pension funds 20 001 1 539 Deposit securities sold to the Bank of Portugal, 162 075 90 835 with repurchase option 150 134 1) Related to BPI Fundos. 170 423 0 2) Increased liability resulting from a complementary pension plan granted to a group of Directors. Placements of other monetary institutions Interbank money market 215 000 219 000 Term or notice deposits 69 412 278 401 At 31 December, 2003 and 2002 the caption VALUATION Other 4 177 31 913 FLUCTUATIONS / PENSION FUNDS corresponds to the actuarial losses 288 589 529 314 relating to the coverage of the liability for retirement and survivor Placements of other credit institutions pensions, resulting from the differences between the actuarial Domestic and financial assumptions and the actual amounts (by the Term or notice deposits 13 851 amount included in the corridor), in accordance with the Other 911 5 provisions of Bank of Portugal Notice 12 / 2001 of 23 Foreign International financial organisations 276 594 264 970 November. During 2003 the balance of this caption was reduced Term or notice deposits 3 501 286 3 211 722 by the actuarial gains, which gave rise to an excess coverage of Margins for hedging derivatives 177 912 216 283 the pension funds in the amount of th. euro 20 001. Other 658 019 1 003 697 4 614 722 4 710 528 At 31 December, 2003 and 2002 the caption STOCK EXCHANGE Short selling of securities 1 093 489 1 341 666 OPERATIONS PENDING SETTLEMENT corresponds to the net value of 6 167 223 6 581 508 the operations on securities recorded from the date of the 6 196 271 6 627 256 transaction to the date of financial settlement established in the respective regulations (note 4.18). At 31 December, 2003 and 2002 the placements of other
At 31 December, 2003 and 2002 the caption OTHER OPERATIONS foreign credit institutions include th. euro 1 017 895 and
PENDING SETTLEMENT includes th. euro 14 306 relating to taxes th. euro 391 896, respectively, relating to placements in the under dispute, paid in accordance with Decree-Law 248 – off-shore branches of the Group. A / 02 of 14 November. The term or notice amounts owed to credit institutions, by residual period to maturity, are as follows:
2003 2002
Up to 3 months 4 224 047 5 363 623 From 3 months to 1 year 852 410 From 1 to 5 years 646 560 525 290 More than 5 years 325 130 325 135 Undefined 119 076 367 460 6 167 223 6 581 508
Consolidated financial statements | Notes 197 4.15. Amounts owed to Customers 4.16. Debt securities This caption is made up as follows: This caption is made up as follows:
2003 2002 2003 2002
Savings deposits 871 989 868 361 Obrigações em circulação Other debts Fixed rate cash bonds Repayable on demand 5 325 681 4 922 142 BBPI Cayman 16/06/03-2008 3.30% 100 000 Term or notice BBPI Cayman 08/03/2001-2007 4.25% 5 000 5 000 Deposits 5 983 687 6 434 065 BBPI Cayman Increasing yield USD 2008 20 690 Loans 2 679 11 959 BBPI Cayman USD 28/05/02-2005 4% 32 906 39 979 Other liabilities BBPI Increasing yield EUR 2003-2008 29 248 Cheques and orders payable 74 102 68 641 BBPI Increasing yield USD 2003-2008 332 Funds related to futures and options operations 10 027 5 853 BBPI Fixed yield 2 years 4.00% 3 623 3 623 Other 87 467 19 909 BBPI Fixed yield 2 years 4.10% 500 500 6 157 962 6 540 427 BBPI Fixed yield 3 years 2.15% 1 988 12 355 632 12 330 930 BBPI Fixed yield 3 years 2.35% 3 416 BBPI Fixed yield 3 years 2.55% 6 806 BBPI Fixed yield 3 years 2.65% 9 159 At 31 December, 2003 and 2002, the caption AMOUNTS OWED TO BBPI Fixed yield 3 years 2.70% 5 189 CUSTOMERS includes th. euro 1 201 926 and th. euro 779 956, BBPI Fixed yield 3 years 2.80% 1 688 respectively, relating to deposits of investment funds managed BBPI Fixed yield 3 years 2.90% 5 042 by the BPI Group, as well as deposits of BPI Vida (the company BBPI Fixed yield 3 years 3.00% 11 119 that processes the capitalisation insurance products sold by the BBPI Fixed yield 3 years 3.10% 2 460 749 BPI Group). BBPI Fixed yield 3 years 3.25% 6 458 6 828 BBPI Fixed yield 3 years 3.40% 10 004 10 338 At 31 December, 2003 the caption OTHER TERM LIABILITIES – OTHER BBPI Fixed yield 3 years 3.50% 1 835 1 889 included th. euro 52 451 relating to guarantee accounts of BPI BBPI Fixed yield 3 years 3.60% 38 497 39 690 Rent, the financial statements of which have been consolidated BBPI Fixed yield 3 years 3.75% 1 668 1 696 by the full consolidation method since 30 June, 2003. BBPI Fixed yield 3 years 3.85% 36 962 38 429 BBPI Fixed yield 3 years 4.00% 16 209 38 095 BBPI Fixed yield 3 years 4.10% 1 114 23 047 The term or notice amounts owed to costumers, including saving BBPI Fixed yield 3 years 4.20% 4 400 16 434 deposits, are made up as follows, by residual period to maturity: BBPI Fixed yield 3 years 4.25% 81 022 85 268 BBPI Fixed yield 3 years 4.40% 11 787
2003 2002 BBPI Fixed yield 3 years 4.65% 1 261 BBPI Fixed yield 5 years 3.50% 1 820 Up to 3 months 3 880 168 4 062 898 BBPI Fixed yield 5 years 4.10% 62 859 65 463 From 3 months to 1 year 2 236 184 2 538 029 BBPI Fixed yield 5 years 4.28% 5 000 5 000 From 1 to 5 years 876 444 583 803 BBPI Fixed yield 5 years 4.40% 821 866 More than 5 years 0 9 259 BBPI Fixed yield 5 years 4.50% 3 850 3 973 Undefined 37 155 214 799 BBPI Fixed yield 7 years 4.04% 750 750 7 029 951 7 408 788 BBPI Increasing fixed yield 24 565 21 539 BPI 95 / Zero Coupon 5 544 BPI 96 – 1st Issue / Zero Coupon 2 032 2 032 BPI 97 – 1st Issue / Zero Coupon 768 768 Variable rate cash bonds BBPI Cayman 01/03/2001-2006 15 000 15 000 BBPI Cayman 03/05/2001-2006 600 000 600 000 BBPI Cayman 06/06/2003-2005 500 000 BBPI Cayman 09/02/2001-2004 400 000 400 000 BBPI Cayman 15/12/2003-2007 250 000 BBPI Cayman 18/03/2002-2005 400 000 400 000 BBPI Cayman 26/02/2001-2003 100 000 BBPI Cayman 28/07/2000-2003 300 000
198 Banco BPI | Annual Report 2003 2003 2002 2003 2002
Variable rate cash bonds (cont.) Variable-yield cash bonds (cont.)1 BBPI Cayman USD 20/10/2010 47 678 BBPI Capital Seguro Rendimento Máximo 25% BBPI Cayman CZK 15/09/2008 30 814 2002-2005 4 758 5 583 BBPI Cayman EMT 15/11/2005 22 500 22 500 BBPI Capital Seguro Rendimento Máximo 27.5% 2001-2004 6 220 7 659 BBPI Cayman EMT 30/05/2006 10 000 10 000 BBPI Capital Seguro Rendimento Máximo 27.5% BBPI Cayman HKD 10/09/2007 10 199 2002-2005 23 336 24 250 BBPI Variable yield 3 years 31 114 BBPI Capital Seguro Rendimento Máximo 5% 2002 37 591 38 640 Variable-yield cash bonds 1 BBPI Capital Seguro Reverse Euribor 2003-2008 38 511 BBPI Capital Seguro Euribor Crescente 2003-2008 24 862 BBPI Capital Seguro Reverse Euribor 2003-2010 4 980 BBPI Capital Seguro Triple Chance 2006 2 000 BBPI Capital Seguro Reverse Libor CHF 2003-2008 2 682 BBPI Capital Seguro Euribor 6% 12/03/2003-08 25 262 BBPI Capital Seguro Reverse Libor USD I 2002-2007 38 142 BBPI Capital Seguro 10 Uncommon Values USD / 2000 2 755 3 566 BBPI Capital Seguro Reverse Libor USD II 2003-2008 23 540 BBPI Capital Seguro American Call / 2003-2008 3 000 BBPI Capital Seguro Reverse Libor USD III 2003-2007 50 331 BBPI Capital Seguro American Call II / 2003-2008 3 000 BBPI Capital Seguro Selecção Europa 2003 st BBPI Capital Seguro American Call III / 2003-2008 700 – 1 Issue 30 605 BBPI Capital Seguro Biotecnologia USD / 2000 3 653 4 796 BBPI Capital Seguro Selecção Europa 2003 – 2nd Issue 27 470 BBPI Capital Seguro Brasil / 99 1 507 1 578 BBPI Capital Seguro Zona Euro 2003 47 724 BBPI Capital Seguro Cinco Mais 2002 19 120 19 766 BBPI Capital Seguro Zona Euro 2004 18 824 19 613 BBPI Capital Seguro Comunicações Móveis nd EUR / 2000 46 731 49 212 BBPI Capital Seguro Zona Euro 2005 2 Issue 42 133 44 547 BBPI Capital Seguro Comunicações Móveis BBPI Capital Seguro Zona Euro 2006 23 154 24 673 EUR / 2000 2nd Issue 47 354 49 470 BBPI Capital Seguro Zona Euro 2006 – 2nd Issue 20 975 22 796 BBPI Capital Seguro Comunicações Móveis BBPI Capital Seguro Zona Euro 2007 26 535 29 548 EUR / 2000 3rd Issue 50 378 54 029 BBPI Cayman EMT 08/08/2008 Index Link 180 000 BBPI Capital Seguro Comunicações Móveis EUR / 2000 4th Issue 48 347 50 813 BBPI Cayman EMT 15/11/2005 Index Link 7 500 7 500 BBPI Capital Seguro Comunicações Móveis BBPI Cayman EMT 18/10/2006 Index Link 63 525 63 525 USD / 2000 3 948 5 406 BBPI Cayman EMT 26/06/2008 Index Link 119 276 BBPI Capital Seguro Directo 2001 1 181 1 268 BBPI Cayman EMT 28/11/2008 Inf Link 129 740 BBPI Capital Seguro Euro BBPI 2000-2003 2 500 BBPI Cayman Global Brands 2003-2009 250 BBPI Capital Seguro Euro Best of 9 2003-2009 4 000 BBPI Cayman Global Brands II 2003-2008 2 080 BBPI Capital Seguro Euro Imobiliário 2002-2007 5 714 5 860 BBPI Risco Limitado 10 Uncommon Values USD / 2000 506 3 051 BBPI Capital Seguro Euro Stoxx 50 / 2003 7 500 BBPI Risco Limitado 80 Cabaz Indices 2008 5 000 BBPI Capital Seguro Euro Stoxx 50 / 2007 8 784 8 940 BBPI Risco Limitado 90 Cabaz Indices 2008 5 000 BBPI Capital Seguro Euro Stoxx 50 / 2008 2 500 2 500 BBPI Risco Limitado Biotecnologia USD / 2000 1 359 8 375 BBPI Capital Seguro Euro Stoxx 50 2001-2004 650 650 BBPI Risco Limitado Comunicações Móveis USD / 2000 6 710 20 341 BBPI Capital Seguro Euro Stoxx 50 2005 1 263 1 490 BBPI Risco Limitado Euro PT 2000 – 2nd Issue 1 460 BBPI Capital Seguro Grandes Marcas 2003-2009 34 773 BBPI Risco Limitado Euro Stoxx 50 2005 2 980 2 980 BBPI Capital Seguro Grandes Marcas II 2003-2008 2 825 BBPI Risco Limitado Euro Telefonica 2000 4 610 BBPI Capital Seguro Healthcare 2001-2006 5 120 5 203 BBPI Risco Limitado Portugal Telecom 2002 2 500 BBPI Capital Seguro Healthcare 2006 – 2nd Issue 2 486 2 498 BBPI Risco Limitado Portugal Telecom 2002-2004 8 702 9 164 BBPI Capital Seguro Imobiliário 2002 42 350 42 700 BBPI Risco Limitado Portuguese Basket 2003-2006 3 100 BBPI Capital Seguro Índices Mundiais 2001 37 438 38 880 BBPI Risco Limitado PT 2001 6 500 BBPI Capital Seguro Inflação Plus 2003-2008 26 653 BBPI Risco Limitado Tecnologia 2001 7 140 BBPI Capital Seguro Inflação Zona Euro 10 years 34 950 10 000 BFB Capital Seguro Europa-100 / 98 33 750 BBPI Capital Seguro Internet Euro / 99 31 438 32 778 BFB Capital Seguro França / 98 16 117 BBPI Capital Seguro Internet Euro / 99 – 2nd Issue 13 912 14 632 BFB Capital Seguro Itália / 98 16 563 BBPI Capital Seguro Internet USD / 99 1 460 3 711 BFB Capital Seguro Japão / 98 26 922 BBPI Capital Seguro Libor Digital EUR 2003-2004 10 500 BFB Capital Seguro Portugal / 98 81 063 BBPI Capital Seguro Multinacionais / 1999 40 386 43 841 BFB Risco Limitado Europa & América / 98 337 BBPI Capital Seguro Portugal / 1999 11 339 11 998 Other BBPI Capital Seguro PTNC 2004 3 735 4 285 Deposit certificates 448 BBPI Capital Seguro Quattro 2004 23 262 25 047 4 298 509 3 541 429 BBPI Capital Seguro Rendimento Euribor 5.75% 2001 37 638 1) The BPI Group has options to hedge the risk resulting from cost variations associated with these bonds.
Consolidated financial statements | Notes 199 At 31 December, 2003 the conditions of these securities were as follows:
Interest rate at Nominal Value Remuneration 31-12-03 Maturity date (%) Fixed rate cash bonds BBPI Cayman 16/06/03-2008 3.3% 100 000 Fixed rate of 3.3% 3.3 June, 2008 BBPI Cayman 08/03/2001-2007 4.25% 5 000 Fixed rate of 4.25% 4.25 August, 2007 BBPI Cayman Increasing Yield 21 441 Fixed rate of 2.75% (2004), 3.25% (2005), 2.75 April, 2008 USD 2008 (2 issues) (USD 27 080 000) 3.5% (2006), 3.75% (2007) and 4.0% (2008) BBPI Cayman USD 28/05/02-2005 4% 34 081 Fixed rate of 4% 4.0 May, 2005 (USD 43 044 000) BBPI Increasing yield EUR 29 500 Fixed rate of 3.25% (2004), 3.50% (2005), 3.25 May, 2008 2003-2008 3.75% (2006), 4.0% (2007) and 4.25% (2008) BBPI Increasing yield USD 332 Fixed rate of 2.75% (2004), 3.25% (2005), 2.75 April, 2008 2003-2008 (USD 420 000) 3.5% (2006), 3.75% (2007) and 4.0% (2008) BBPI Fixed yield 2 years 4.% 3 698 Fixed rate of 4.0% 4.0 Between March, 2004 (2 issues) and April, 2004 BBPI Fixed yield 2 years 4.1% 500 Fixed rate of 4.1% 4.1 April, 2004 BBPI Fixed yield 3 years 2.15% 2 028 Fixed rate of 2.15% 2.15 Between June, 2006 and (2 issues) July, 2006 BBPI Fixed yield 3 years 2.35% 3 425 Fixed rate of 2.35% 2.35 Between June, 2006 and (2 issues) July, 2006 BBPI Fixed yield 3 years 2.55% 7 063 Fixed rate of 2.55% 2.55 Between March, 2006 (2 issues) and May, 2006 BBPI Fixed yield 3 years 2.65% 9 690 Fixed rate of 2.65% 2.65 Between March, 2006 (4 issues) and April, 2006 BBPI Fixed yield 3 years 2.70% 5 205 Fixed rate of 2.70% 2.7 Between May, 2006 and (2 issues) August, 2006 BBPI Fixed yield 3 years 2.80% 1 782 Fixed rate of 2.80% 2.8 February, 2006 BBPI Fixed yield 3 years 2.90% 5 190 Fixed rate of 2.90% 2.9 Between February, 2006 (2 issues) and August, 2006 BBPI Fixed yield 3 years 3.00% 11 298 Fixed rate of 3.00% 3.0 Between January, 2006 (2 issues) and September, 2006 BBPI Fixed yield 3 years 3.1% 2 524 Fixed rate of 3.1% 3.1 Between December, 2004 (2 issues) and January, 2006 BBPI Fixed yield 3 years 3.25% 6 959 Fixed rate of 3.25% 3.25 Between January, 2005 (3 issues) and December, 2005 BBPI Fixed yield 3 years 3.4% 10 894 Fixed rate of 3.4% 3.4 November, 2005 (2 issues) BBPI Fixed yield 3 years 3.5% 1 935 Fixed rate of 3.5% 3.5 Between November, 2004 (2 issues) and February, 2005 BBPI Fixed yield 3 years 3.6% 40 165 Fixed rate of 3.6% 3.6 October, 2005 (2 issues) BBPI Fixed yield 3 years 3.75% 1 730 Fixed rate of 3.75% 3.75 March, 2005 BBPI Fixed yield 3 years 3.85% 38 762 Fixed rate of 3.85% 3.85 September, 2005 (2 issues) BBPI Fixed yield 3 years 4.0% 17 020 Fixed rate of 4.0% 4.0 Between April, 2004 and (5 issues) August, 2005 BBPI Fixed yield 3 years 4.1% 1 162 Fixed rate of 4.1% 4.1 September, 2004 BBPI Fixed yield 3 years 4.2% 5 283 Fixed rate of 4.2% 4.2 February, 2004 BBPI Fixed yield 3 years 4.25% 87 722 Fixed rate of 4.25% 4.25 Between February, 2004 (17 issues) and August, 2005 BBPI Increasing fixed yield 3 years 7 995 Fixed rate of 2.50% (2004), 2.75% (2005) 2.5 October, 2006 (2 issues) and 3.00% (2006) BBPI Increasing fixed yield 3 years 13 530 Fixed rate of 2.75% (2004), 3.00% (2005) 2.75 Between September, 2006 (4 issues) and 3.25% (2006) and December, 2006 BBPI Increasing fixed yield 3 years 3 065 Fixed rate of 3.00% (2004), 3.10% (2005) 3.0 November, 2006 e 3.20% (2006) BBPI Fixed yield 5 years 3.50% 1 855 Fixed rate of 3.50% 3.5 January, 2009 BBPI Fixed yield 5 years 4.1% 75 150 Fixed rate of 4.1% 4.1 October, 2004 (3 issues) BBPI Fixed yield 5 years 4.28% 5 000 Fixed rate of 4.28% 4.28 August, 2006 BBPI Fixed yield 5 years 4.4% 938 Fixed rate of 4.4% 4.4 March, 2005 (2 issues)
200 Banco BPI | Annual Report 2003 Interest rate at Nominal Value Remuneration 31-12-03 Maturity date (%) Fixed rate cash bonds (cont.) BBPI Fixed yield 5 years 4.5% 4 182 Fixed rate of 4.5% 4.5 February, 2005 (2 issues) BBPI Fixed yield 7 years 4.04% 750 Fixed rate of 4.04% 4.04 October, 2009 BPI 96 – 1st issue / Zero Coupon 2 032 Difference between the redemption value and April, 2004 the issue price (th. euro 998) BPI 97 – 1st issue / Zero Coupon 768 Difference between the redemption value and November, 2005 the issue price (th. euro 499) Variable rate cash bonds BBPI Cayman 01/03/2001-2006 15 000 Indexed to the 3 month Euribor rate 2.326 April, 2006 BBPI Cayman 03/05/2001-2006 600 000 Indexed to the 3 month Euribor rate 2.384 May, 2006 BBPI Cayman 06/06/2003-2005 500 000 Indexed to the 3 month Euribor rate 2.284 June, 2005 BBPI Cayman 09/02/2001-2004 400 000 Indexed to the 3 month Euribor rate 2.315 February, 2004 BBPI Cayman 15/12/2003 – 15/01/2007 250 000 Indexed to the 3 month Euribor-Telerate 2.26 January, 2007 BBPI Cayman 18/03/2002-2005 400 000 Indexed to the 3 month Euribor rate 2.295 March, 2005 BBPI Cayman 15/09/2003-2008 30 814 Indexed to the CZK – Pribor – PRBO rate 2.27 September, 2008 BBPI Cayman EMT 15/11/2005 22 500 Indexed to the 3 month Euribor rate 2.361 November, 2005 BBPI Cayman EMT 30/05/2006 10 000 Indexed to the 6 month Euribor rate 2.269 May, 2006 BBPI Cayman 09/09/2003 – 10/09/2007 10 199 Indexed to the 3 month HKD – Hibor – HKAB rate September, 2007 BBPI variable yield 3 years (22 issues) 31 987 Indexed to the 1 year Euribor rate Between February, 2006 and December, 2006 Variable yield cash bonds BBPI Capital Seguro Euribor Crescente 25 000 Fixed rates of 4.5% and 4.75% in the 1st and 2nd years, and 4.5 March, 2008 2003 – 2008 indexed to the 1 year Euribor rate from the 3rd to the 5th years BBPI Capital Seguro Euribor 6% 2003-2008 25 306 6% in the 1st year, between 0% and 6% and indexed to the 6.0 March, 2008 1 year Euribor rate, from the 2nd to the 5th BBPI Capital Seguro Inflação Plus 2003-2008 27 015 3.5% in the 1st year and linked to the HICP (Euro 3.5 April, 2008 harmonizedconsumer index price, excluding tobacco), from the 2nd to the 5th BBPI Cayman EMT 26/06/2008 Index Link 119 276 3% in the 1st year and linked to the HICP (Euro 3.0 June, 2008 harmonized consumer index price, excluding tobacco), from the 2nd to the 5th BBPI Risco Limitado 80 Cabaz de Índices 5 000 Linked to the valuation of Nasdaq 100, Eurostoxx 50 and S&P 500 April, 2008 BBPI Risco Limitado 90 Cabaz de Índices 5 000 Linked to the valuation of Nasdaq 100, Eurostoxx 50 and S&P 500 April, 2008 BBPI Capital Seguro Portugal / 1999 15 000 Linked to the PSI20 Index. The lower limit is zero per bond April, 2004 BBPI Capital Seguro Multinacionais / 1999 50 000 Linked to an index composed by a basket of shares of June, 2004 multinational companies listed on International Stock Exchanges The lower limit is zero per bond BBPI Capital Seguro Brasil / 99 7 500 25% of the nominal value on the maturity date or zero July, 2004 if there is any non-compliance of conditions by the Federal Republic of Brazil BBPI Capital Seguro Zona Euro 2004 25 000 Linked to the DJ Euro Stoxx 50 Price Index July, 2004 The lower limit is zero per bond BBPI Capital Seguro Zona Euro 2007 39 500 Linked to the DJ Euro Stoxx 50 Price Index August, 2007 The lower limit is 0.16 euro per bond BBPI Capital Seguro Internet USD / 99 20 586 Linked to the DJ Internet Composite Index October, 2004 (USD 26 000 000) The lower limit is zero per bond BBPI Capital Seguro Internet Euro / 99 35 000 Linked to the DJ Internet Composite Index November, 2004 The lower limit is zero per bond BBPI Capital Seguro Internet Euro / 99 15 000 Linked to the DJ Internet Composite Index November, 2004 – 2nd Issue The lower limit is zero per bond BBPI Risco Limitado Comunicações 25 930 Linked to the BPI Comunicações Móveis Index January, 2005 Móveis USD / 2000 (USD 32 750 000) The lower limit is USD – 0.1 per bond BBPI Capital Seguro Comunicações 10 491 Linked to the BPI Comunicações Móveis Index January, 2005 Móveis USD / 2000 (USD 13 250 000) The lower limit is zero per bond BBPI Capital Seguro Comunicações 50 250 Linked to the BPI Comunicações Móveis Index February, 2005 Móveis EUR / 2000 The lower limit is zero per bond BBPI Capital Seguro Comunicações 50 750 Linked to the BPI Comunicações Móveis Index (2nd Issue) March, 2005 Móveis EUR / 2000 2nd Issue The lower limit is zero per bond BBPI Risco Limitado Sector Nasdaq 100 3 167 Linked to the Nasdaq 100 Index. The lower limit is March, 2005 USD / 2000 (USD 4 000 000) USD – 0.1 per bond
Consolidated financial statements | Notes 201 Interest rate at Nominal Value Remuneration 31-12-03 Maturity date (%) Variable yield cash bonds (cont.) BBPI Risco Limitado Sector Internet 3 167 Linked to the Dow Jones Internet Composite Index. March, 2005 USD / 2000 (USD 4 000 000) The lower limit is USD – 0.1 per bond BBPI Risco Limitado Sector 10 2 375 Linked to the 10 Uncommon Values Index March, 2005 Uncommon Values USD / 2000 (USD 3 000 000) The lower limit is USD – 0.1 per bond BBPI Risco Limitado Sector 5 938 Linked to the Amex Biotechnology Index March, 2005 Biotecnologia USD / 2000 (USD 7 500 000) The lower limit is USD – 0.1 per bond BBPI Capital Seguro Comunicações 55 200 Linked to the BPI Comunicações Móveis Index (3rd Issue) March, 2005 Móveis EUR / 2000 3rd Issue The lower limit is zero per bond BBPI Capital Seguro Biotecnologia 6 413 Linked to the Amex Biotechnology Index March, 2005 USD / 2000 (USD 8 100 000) The lower limit is zero per bond BBPI Risco Limitado Biotecnologia 17 973 Linked to the Amex Biotechnology Index March, 2005 USD / 2000 (USD 22 700 000) The lower limit is USD – 0.1 per bond BBPI Risco Limitado 10 Uncommon 7 047 Linked to the 10 Uncommon Values Index April, 2005 Values USD / 2000 2nd Issue (USD 8 900 000) The lower limit is USD – 0.1 per bond BBPI Capital Seguro Comunicações 51 250 Linked to the BPI Comunicações Móveis Index (4th Issue) April, 2005 Móveis EUR / 2000 4th Issue The lower limit is zero per bond BBPI Capital Seguro 10 Uncommon 4 850 Linked to the 10 Uncommon Values Index April, 2005 Values USD / 2000 (USD 6 125 000) The lower limit is zero per bond BBPI Capital Seguro Zona Euro 2005 50 000 Linked to the DJ Euro Stoxx 50 Price Index June, 2005 – 2nd Issue The lower limit is zero per bond BBPI Capital Seguro Euro Stoxx 50 / 2008 2 500 Linked to the Dow Jones Euro Stoxx 50 Price Index July, 2008 The lower limit is 0.05 euro per bond BBPI Risco Limitado Euro Stoxx 50 2005 3 000 Linked to the Dow Jones Euro Stoxx 50 Price Index August, 2005 The lower limit is –0.1 euro per bond BBPI Capital Seguro Euro Stoxx 50 2005 2 125 Linked to the Dow Jones Euro Stoxx 50 Price Index August, 2005 The lower limit is zero per bond BBPI Capital Seguro Euro Stoxx 50 2001-2007 10 000 Linked to the Dow Jones Euro Stoxx 50 Price Index April, 2007 The lower limit is zero per bond BBPI Capital Seguro Índices Mundiais 2001 50 000 Linked to the Nikkei 225, FTSE 100, Dow Jones Euro Stoxx 50, March, 2006 Nasdaq 100 and S&P 500 Price Indexes. The lower limit is zero per bond BBPI Capital Seguro Zona Euro 2006 25 000 Linked to the DJ Euro Stoxx 50 Price Index. The lower limit May, 2006 is 10 euro per bond BBPI Capital Seguro PTNC 2004 4 325 Linked to the valuation of Portugal Telecom, Telefonica, May, 2004 Nokia and Cisco shares. The lower and upper limits are 9 and 22 euro per bond BBPI Capital Seguro Zona Euro 2006 – 2nd Issue 25 000 Linked to the DJ Euro Stoxx 50 Price Index June, 2006 The lower limit is 10 euro, per bond BBPI Capital Seguro Quattro 2004 27 100 Linked to the valuation of Portugal Telecom, Telefonica, June, 2004 Nokia and Cisco Systems shares. The lower and upper limits are 6 and 25 euro per bond BBPI Capital Seguro Rendimento Máximo 8 000 Linked to the valuation of Portugal Telecom, Telefonica, July, 2004 27.5% 2001-2004 Axa and Bayer shares. The lower and upper limits are 6 and 27.5 euro per bond BBPI Capital Seguro Directo 2001 2 500 Linked to the valuation of Portugal Telecom, Telefonica, December, 2004 Nokia and Cisco Systems shares. The lower and upper limits are 6 and 20 euro per bond BBPI Capital Seguro Healthcare 2001-2006 5 300 Linked to the Dow Jones Healthcare Price Index December, 2006 The lower limit is zero per bond BBPI Capital Seguro Healthcare 2006 – 2nd issue 2 500 Linked to the Dow Jones Europe Stoxx Healthcare Price Index December, 2006 The lower limit is zero per bond BBPI Capital Seguro Euro Stoxx 50 2001-2004 1 150 Linked to the Dow Jones Euro Stoxx 50 Price Index December, 2004 The lower limit is 3 euro per bond BBPI Cayman 2006 63 525 Linked to a basket of indexes October, 2006 BBPI Cayman 2005 7 500 Linked to a basket of Dow Jones indexes November, 2005 BBPI Capital Seguro Imobiliário 2002 50 000 Linked to the European Public Real Estate Index. The lower June, 2007 limit is 10 euro per bond BBPI Capital Seguro Euro Imobiliário 2002-2007 6 000 Linked to the European Public Real Estate Index. The lower May, 2007 limit is 8 euro per bond BBPI Capital Seguro Cinco Mais 2002 25 000 Linked to the valuation of Endesa, JP Morgan Chase, June, 2007 Nestlé, Portugal Telecom and Royal Dutch Petroleum shares The lower limit is zero per bond
202 Banco BPI | Annual Report 2003 Interest rate at Nominal Value Remuneration 31-12-03 Maturity date (%) Variable yield cash bonds (cont.) BBPI Risco Limitado Portugal Telecom 2002 2 500 Linked to the valuation of Portugal Telecom shares March, 2004 BBPI Risco Limitado Euro Portugal Telecom 9 950 Linked to the valuation of Portugal Telecom shares March, 2004 2002-2004 The upper limit is 17 euro per bond BBPI Capital Seguro Rendimento Máximo 39 600 Indexed to the 6 month USD Libor rate March, 2005 5% 2002 BBPI Capital Seguro Rendimento Máximo 5 750 Linked to the valuation of Acesa, Aegon NV, Bayer and March, 2005 25% 2002-2005 British American Tobacco shares BBPI Inflação Zona Euro 10 Years (3 issues) 31 200 Linked to the HICP Index (Euro harmonized consumer index Between October, 2012 price, excluding tobacco) and April, 2013 BBPI Capital Seguro Rendimento Máximo 25 000 Linked to the valuation of Intel, AT&T, Hewlett-Packard and May, 2005 27.5% 2002-2005 Deutsche Telekom shares BBPI Cayman Global Brands 2003-2009 5 000 Linked to a basket of 15 shares July, 2009 BBPI Cayman EMT 08/08/2008 Index Link 180 000 Fixed rate of 3.25% in the 1st year and linked to the 3.25 August, 2008 inflation rate of Euro Zone from 08/08/2004 BBPI Capital Seguro Reverse Euribor 45 000 Fixed rates of 3.75% in the 1st year, and 5.5%, 6.5%, 3.75 August, 2008 2003 – 2008 – Cayman 7.5% and 8.5% minus 1 year Euribor rate from the 2nd to the 5th year. The lower limit is zero per bond BBPI Capital Seguro Reverse Libor USD II 27 712 Fixed rates of 3.75% in the 1st year, and 5.5%, 6.5%, 3.75 August, 2008 2003 – 2008 – Cayman (USD 35 000 000) 7.5% and 8.5% minus 1 year USD Libor from the 2nd to the 5th year. The lower limit is zero per bond BBPI Capital Seguro Libor Digital EUR 12 500 0% or 4.25%, depending upon USD – Libor – 4.252 December, 2004 2003 – 2004 Cayman – BBA evolution BBPI Cayman Global Brands II 2003 –2008 2 500 Linked to a basket of 15 shares October, 2008 BBPI Capital Seguro Reverse Libor USD III 51 465 Fixed rates of 5.00% in the 1st year, and 5.75%, 5.0 November, 2007 2003 – 2007 – Cayman (USD 65 000 000) 6.25% and 7.0% minus 1 year USD Libor from the 2nd to the 4th year. The lower limit is zero per bond BBPI Cayman EMT 28/11/2008 Inf Link 129 740 Fixed rate of 3.25% for the 1st year and linked to the 3.25 November, 2008 inflation of Euro Zone from 28/11/2004 BBPI Capital Seguro Reverse Libor CHF 3 209 Fixed rates of 3.5% in the 1st year and 4.00%, 3.5 December, 2008 2003 – 2008 – Cayman (CHF 5 000 000) 4.25%, 4.5% and 5.0% minus 6 month CHF Libor from the 2nd to the 5th year. The lower limit is zero per bond BBPI EUR Triple Chance 2003-2006 2 000 Linked to the valuation of Telefonica, Ing Groep and UBS AG shares June, 2006 BBPI Capital seguro Grandes Marcas 35 000 Maximum between a fixed component (2% at the beginning 2.0 July, 2009 2003 – 2009 and never less than the prior year yield) and a variable variable component linked to a basket of 15 shares BBPI Capital Seguro American Call 2003 – 2008 3 000 Linked to the SPX (500) Index October, 2008 BBPI Capital seguro Grandes Marcas II 2 825 Maximum between a fixed component (1% at the beginning 1.0 October, 2008 2003 – 2008 and never less than the prior year yield) and a variable component linked to a basket of 15 shares BBPI Capital Seguro American Call II 2003 – 2008 3 000 Linked to the SPX (500) Index November, 2008 BBPI Capital Seguro American Call III 2003 – 2008 1 000 Linked to the SPX (500) Index November, 2008 BBPI Risco Limitado Portuguese Basket 3 500 Linked to the valuation of Portugal Telecom, BCP and EDP shares November, 2006 2003 – 2006 Cayman BBPI Capital Seguro Eur Best of 9 5 000 Linked to a basket of 9 EFT´s (Exchanged Traded Funds) February, 2009 2003-2009 Cayman BBPI Capital Seguro Reverse Euribor 5 000 Fixed rates of 5.75% in the 1st and 2nd year and 8.25% 5.75 December, 2010 2003 – 2010 minus 1 year Euribor from 3rd to 7th year The lower limit is zero per bond
Consolidated financial statements | Notes 203 4.17. Other liabilities 4.18. Accruals, deferrals and others (liabilities) This caption is made up as follows: This caption is made up as follows:
2003 2002 2003 2002
Creditors Accrued expenses Suppliers 14 441 8 840 On funds from credit institutions 16 186 35 208 Creditors for factoring contracts 13 464 11 544 On deposits 43 039 61 889 Other creditors 96 702 145 579 On loans 180 Other liabilities On debt securities 43 065 41 072 State administrative sector Administrative costs Income tax 8 830 7 713 Variable personnel costs 27 767 27 314 Taxes withheld at source 12 916 12 709 Other 36 961 41 820 Other 2 071 8 056 On foreign-exchange and interest rate swaps 124 036 207 914 Contributions to the pension funds 7 48 Revaluation of Capital Seguro and Risco Limitado bonds 8 721 86 223 Others 6 462 3 608 Other 12 398 9 312 154 893 198 097 312 353 510 752 Deferred income At 31 December, 2002 the caption OTHER CREDITORS includes On securities issued at a discount 750 7 547 th. euro 35 894 relating to collections from Customers of Banco Pension funds 0 655 de Fomento, S.A.R.L. (Angola) which are awaiting authorisation Premiums on options sold relating to Capital Seguro operations 941 1 739 from the National Bank of Angola for the issue of the payment Swaps operations 24 535 16 886 order. Other off-balance sheet operations 2 656 2 698 Other 20 739 14 376 49 621 43 901 Value fluctuations 954 13 Other accounts Collected amounts 127 197 8 296 Stock exchange operations pending settlement 10 571 152 Operations pending settlement 86 247 57 889 Revaluation of options relating to Capital Seguro operations 885 11 820 Corporate income tax – payments on account 8 907 7 011 Other 29 104 2 306 262 911 87 474 Other internal accounts (note 2.6) 72 262 61 526 698 101 703 666
The caption OTHER DEFERRED INCOME at 31 December, 2003 and 2002, includes th. euro 3 658 and th. euro 6 309, respectively, relating to the purchase of Fundo EFTA. This amount results from credits owned by the Fund that were bought by BPI at below their nominal value.
At 31 December, 2003 the caption COLLECTED AMOUNTS included th. euro 128 410 collected by BPI, that was paid to Clients in the beginning of January of 2004.
204 Banco BPI | Annual Report 2003 At 31 December, 2003 and 2002 the caption STOCK EXCHANGE At 31 December, 2003 and 2002 the caption PROVISIONS FOR
OPERATIONS PENDING SETTLEMENT corresponds to the net value of RETIREMENT BENEFITS also includes th. euro 4 615 and th. euro the operations on securities recorded from the date of the 4 266, respectively, relating to the past service liability of transaction to the date of financial settlement established in Employees of Banco Fomento, S.A.R.L. (Angola). At 31 the respective regulations (note 4.13). December, 2002 this caption also included th. euro 374 and th. euro 1 115 relating to the past service liability of Employees At 31 December, 2003 the caption OPERATIONS PENDING of the Madrid Branch of Banco BPI and Banco Fomento, S.A.R.L. SETTLEMENT included th. euro 41 603 and th. euro 35 464, (Mozambique), respectively. respectively relating to interbank electronic transfers and ATM / / POS transactions to be settled with SIBS. The movement in the provisions during 2003 and 2002 is shown in note 4.27. At 31 December, 2003 the caption OTHER ACCRUALS, DEFERRALS AND OTHERS ACCOUNTS included th. euro 10 111 corresponding to 4.20. Liabilities for retirement and survivor pensions amounts to be settled relating to leasing and factoring activities The past service liability relating to pensioners and current and th. euro 10 511 relating to revaluations under the Variable Employees that are, or have been, Employees of BPI Group Remuneration Programme (RVA). companies1, and which is covered by pension funds, is calculated in accordance with the requirements of Bank of Portugal Notice 4.19. Provisions for sundry risks and fund for general banking 12 / 2001 of 23 November, with the changes introduced by Bank risks of Portugal Notice 7 / 2002 of 31 December. These captions are made up as follows: BPI Pensões is the entity responsible for the actuarial 2003 2002 calculations necessary to determine the amount of the retirement Provisions for retirement benefits 17 159 14 541 and survivor pension liability, as well as for the management of Other provisions (note 2.10) the respective pension funds. For general credit risks 169 940 188 397 For other risks 36 637 12 042 206 577 200 439 The “Projected Unit Credit” method was used to calculate the Fund for general banking risks (note 2.11) 1 933 5 059 normal cost and the past service liability due to age and the 225 669 220 039 Single Successive Premiums are used for the calculation of the cost of the incapacity and survivor benefits. The members of the executive board of Banco BPI, S.A., as well as the other board members of BPI Investimentos are entitled to The main actuarial and financial assumptions used to calculate retirement and survivor pensions. The present value of the past the liability for pensions are as follows: service liability of the pension plan at 31 December, 2003 and Assumptions Realised 2002 amounts to th. euro 14 029 and th. euro 12 208, respectively. 2003 2002 Mortality Table TV – 73 / 77 - - This liability is being expensed through a plan of uniform annual Incapacity Table EKV 80 - - instalments at a rate of 7% over the remaining service lives of the Discount Rate 7.0% - - Pension Fund Income Rate 7.0% 14.7% 3.1% individuals covered. At 31 December, 2003 and 2002 the Pensionable salary growth rate 4.0% 4.5% 3.5% caption PROVISIONS FOR RETIREMENT BENEFITS includes th. euro Pension growth rate 3.0% 2.6% 3.2% 12 544 and th. euro 8 786, respectively, to cover this liability. Personnel turnover rate 0% - - Decreases By mortality - -
1) Companies consolidated by full consolidation method (Banco BPI, BPI Investimentos, BPI Fundos and Inter-Risco).
Consolidated financial statements | Notes 205 At 31 December, 2003 and 2002, pensioners and Employees At 31 December, 2003 and 2002 the past service liability was that are beneficiaries of the pension funds are as follows: funded as follows:
2003 2002 2003 2002
Pensioners by age 5 788 5 300 A. Total past service liability 1 561 070 1 449 710 Pensioners for survivance 878 865 B. Total past service liability to be recognised until 2021 (85 529) (87 880) Current Employees 6 261 6 786 C. Past service liability recognised in the Former Employees (clause 137th A and 140th)1 131 970 balance sheet 1 475 541 1 361 830 14 058 13 921 D. Pension Fund Assets Opening balance 1 363 326 1 256 581 Contributions of BPI Group companies At 31 December, 2003 and 2002 the amount of the retirement Related to current costs 18 129 19 566 and survivor pension liabilities are as follows: Extraordinary 2 999 121 008
2003 2002 Other 51 0 Contributions of Employees 1 562 1 477 A. Past service liability Net income of the Funds 196 390 41 890 Liability for pensions under payment 1 273 133 1 134 265 Pensions paid out of the Funds (86 915) (77 196) Of which: [increase in the liability resulting from early retirements 1 495 542 1 363 326 during the year] [ 68 825] [ 57 387] E. Contributions to be transferred to the Past service liability of current Employees 287 498 315 445 pension funds (note 4.17) 0 48 Past service liability of former Employees 439 F. Total coverage (D+E) 1 495 542 1 363 374 1 561 070 1 449 710 G. Excess coverage (F-C) 20 001 1 544 B. Future service liability 293 059 306 601 H. Coverage of the past service liability recognised in the balance sheet (F / C) 101% 100% C. Total past and future service liability (A+B) 1 854 129 1 756 311 I. Coverage of the total past service liability (F / A) 96% 94%
Since 31 December, 2001, in accordance with the procedures During 2003 and 2002 the contributions to the fund were made established in Bank of Portugal Notice 12 / 2001, incapacity in cash. decreases are not used in the calculation of the past service liability for current Employees. This change resulted in an At 31 December, 2003 and 2002, the investments of pension increase in responsibilities, as of that date, of th. euro 90 077 funds included th. euro 88 976 and th. euro 86 645, which, following Bank of Portugal agreement, is being respectively, of properties rented to BPI Group companies. recognised as expense and funded in accordance with a plan of equal annual instalments over a maximum period of 20 years as At 31 December, 2003 and 2002, the past service liability not from the year 2002 (note 4.28). yet expensed is as follows:
2003 2002
A. Increased liability due to early retirements 138 513 87 027 B. Actuarial losses (gains) related to changes in actuarial assumptions B1. Recognised as deferred costs 3 486 2 204 B2. Recognised as deferred income (655) C. Actuarial losses (gains) related to diferences between actuarial and financial assumptions and actual values C1. Recognised as valuation fluctuations 25 637 120 390 C2. Recognised as deferred costs 75 65 C3. Recognised as deferred income D. Liability not yet expensed (A+B+C2+C3) 142 074 88 641
206 Banco BPI | Annual Report 2003 At 31 December, 2003 and 2002, the increase in the liability 4.21. Subordinated Debt resulting from not using the incapacity decreases amounted to This caption is made up as follows: th. euro 85 529 and th. euro 87 880, respectively. 2003 2002
Participating bonds At 31 December, 2003 and 2002, the consolidated statements BFE 87 participating bonds – 1st Issue 14 190 8 673 of income reflect costs relating to the pensions liability as shown BFE 87 participating bonds – 2nd Issue 13 725 7 740 below: Subordinated loans
2003 2002 BPI 94 subordinated cash bonds 49 880 49 880 BPI 96 subordinated cash bonds 74 820 74 820 Personnel costs BPI 96 subordinated perpetual bonds 74 820 Current costs 17 966 19 566 BPI 96 subordinated perpetual bonds in Yens 55 534 60 294 Extraordinary losses (gains) BFB 1997 / 2007 subordinated cash bonds 74 820 74 820 Increased liability resulting from non using of incapacity decreases 8 503 8 503 BBI / 92 subordinated cash bonds 24 697 Amortisation of early retirement costs 17 340 10 364 BPI 2001 "Rendimento Mais" subordinated cash bonds 98 980 99 932 Amortisation of actuarial losses (gains) related to: BPI 2001 / 2011 subordinated cash bonds 150 000 150 000 – Changes on actuarial assumptions (55) 169 BPI 2003 / 2013 subordinated cash bonds 244 000 – Differences between actuarial and financial assumptions and actual values 6 775 949 625 676 25 794 19 036
At 31 December, 2003 these securities had the following characteristics:
Interest rate Nominal Value Interest rate as of 31-12-03 Maturity date (%) Participating bonds BFE 87 participating bonds – 1st Issue 14 209 Linked to the 1 year Euribor rate and to Fixed: 1.34 Banco BPI's profits Variable: 1.012 BFE 87 participating bonds – 2nd Issue 13 872 Linked to the 1 year Euribor rate and to Fixed: 1.3993 Banco BPI's profits Variable: 1.0457 Subordinated loans BPI 94 subordinated cash bonds 49 880 Linked to the 6 month Euribor rate 2.925 October, 2004 BPI 96 subordinated cash bonds 74 820 Linked to the 6 month Euribor rate 2.4375 December, 2006 BPI 96 subordinated perpetual 55 534 4% until November 2011 and thereafter indexed 4.0 bonds in Yens (7 500 millions JPY) to the rate of the 5 year securities issued by the Japanese government BFB 1997 / 2007 subordinated 74 820 Linked to the 3 month Euribor rate 2.375 November, 2007 cash bonds BPI 2001 “Rendimento Mais” 100 000 Linked to the 6 month Euribor rate 2.981 July, 2006 subordinated cash bonds BPI 2001 / 2011 subordinated cash 150 000 5% in first year, 5.1% in the second year, 5.2% in the third 5.2 July, 2011 bonds year, 5.3% in the fourth year, 5.4% in the fifth year, 5.5% in the sixth year, 5.85% in the seventh year, 6.2% in the eighth year, 6.55% in the ninth year and 7% in the tenth year BPI 2003 / 2013 subordinated cash bonds 250 000 Linked to the 3 month Euribor rate 2.688 October, 20013
The BPI 96 subordinated cash bonds, BFB 1997 / 2007 The Bank of Portugal considers that the funds resulting from subordinated cash bonds, BPI 2001 “Rendimento Mais” these liabilities are equivalent, for purposes of computing the subordinated cash bonds and BPI 2003 / 2013 subordinated solvency ratio, to own funds. In the five year preceding their cash bonds can be redeemed earlier, in whole or in part, at the repayment, the amount that is equivalent to own funds is option of Banco BPI, on any interest payment date as from the subject to a program of gradual reduction, in accordance with 10th, 20th, 10th, and 20th coupons, respectively. The BPI 96 Bank of Portugal Notice 12 / 92, of 22 December. subordinated perpetual bonds in Yens can be redeemed earlier, in whole or in part, at the option of Banco BPI as from 15th year, inclusive, and subsequently on the respective interest payment dates.
Consolidated financial statements | Notes 207 4.22. Minority Interests This caption is made up as follows:
Balance sheet Income statement
2003 2002 2003 2002 Minority shareholders of: BPI Capital Finance Ltd. 259 538 248 290 9 530 9 893 CrediUniverso – Serviços de Marketing, S.A. 1 031 7671 201 Inter-Risco – Sociedade de Capital de Risco, S.A. 3 404 3 784 (318) (280) BPI (Suisse), S.A. 1 1 (1) (1) BPI Dealer – Sociedade Financeira de Corretagem (Moçambique), S.A.R.L. 4 Solo – Investimentos em Comunicação, S.A. (11)1 262 947 253 106 9 978 9 802
1) Results acquired from minority shareholders.
At 31 December, 2003 minority interests of BPI Capital Finance 4.23. Subscribed share capital Ltd. included th. euro 250 000 corresponding to 250 000 C By public deed dated 3 June, 2002, Banco BPI' share capital Series preference shares with a nominal value of 1 000 euro was increased from th. euro 645 625 to th. euro 760 000 by each, issued by that subsidiary of Banco BPI in August 2003. the issuance of 114 375 000 nominal shares of 1 euro each for During 2003, 6 000 000 non-voting A Series preference shares public subscription restricted to the shareholders. The shares and 4 000 000 non-voting B Series preference shares, with a were paid at a subscription price of 1.75 euro each, corres- nominal value of 25 US Dollars each, and issued by BPI Capital ponding to a share premium of 0.75 euro per share (note 4.24). Finance Ltd, were redeemed. The Shareholders General Meeting held on 10 April, 2003 The payment of dividends and redemption of capital of the empowered Banco BPI' Board of Directors to do the following preference shares are guaranteed by Banco BPI. during a period of 18 months:
The C Series preference shares entitle holders to a non- a) buy up to 10% of Banco BPI’s own shares on organised -cumulative preference dividend at a rate equal to the three markets at prices not exceeding 110% of the cumulative month Euribor rate plus a spread of 1.55 percentage points up weighted average of the daily weighted average prices of to 12 August, 2013 and thereafter a non-cumulative preference Banco BPI' shares on the 20 stock exchange sessions dividend at a rate equal to the three month Euribor rate plus a preceding the date of purchase, and not lower than 1 euro; spread of 2.55 percentage points. The dividends are payable quarterly on 12 February, 12 May, 12 August and 12 November. b) sell Banco BPI shares and share options to Employees and Directors of Banco BPI and subsidiaries, under the terms and During 2003 dividends paid in advance by BPI Capital Finance conditions established in the regulations for the Variable to these preference shareholders amounted to th. euro 8 248. Remuneration Programme (RVA);
The C Series preference shares are redeemable in whole or in c) sell to third parties at a minimum price of 10% below the part at their nominal value, at the option of BPI Capital Finance, weighted average prices of Banco BPI' shares on the 20 stock Ltd. on any dividend payment date as from August 2013, exchange sessions preceding the date of sale. Those sales subject to prior consent of the Bank of Portugal and Banco BPI. should be carried out on the stock exchange, except if related to ADR’s (American Depositary Receipts) placing in the These shares are subordinated to all liabilities of Banco BPI and United States of America. “pari passu” to any other preference shares that might be issued by the Group in the future. At 31 December, 2003 Banco BPI' share capital was made up of 760 000 000 fully paid shares with a nominal value of 1 euro each.
208 Banco BPI | Annual Report 2003 4.24. Share premium account From 31 December, 2001 to 31 December, 2003 the movement The corporate reorganisation of the BPI Group includes the in this caption was as follows: merger of Banco BPI, BPI Factor, BPI Leasing, Estratégia, Dixit
Share premium account as of 31 December, 2001 201 052 and BPI Ventures into BPI SGPS and the spin-off of part of the Capital increase in June, 2002 net assets of Banco Português de Investimento into BPI SGPS. (by public deed dated 3 June, 2002) – Share premium on shares issued (note 4.23) 85 781 At 31 December, 2003 and 2002 the share premium account Share premium account as of 31 December, 2002 286 833 and legal reserves of the companies included within the BPI Provisions for equity investments (Notice 4 / 2002) (55 527) Group which, under applicable regulation may not be Share premium account as of 31 December, 2003 231 306 distributed, amount to th. euro 106 056 and th. euro 128 789, respectively. These balances, weighted by Banco BPI’s effective In accordance with Decree 408 / 99, of 4 June, published in the holding in these companies, amount to th. euro 41 448 and Diário da República – 1st B Series, 129, the share premium th. euro 39 519, respectively. These reserves are included in the account may not be distributed and may not be used for the caption CONSOLIDATION RESERVES. acquisition of treasury stock. At 31 December, 2003 and 2002 the revaluation reserves of 4.25. Reserves companies included within the BPI Group amount to th. euro This caption is made up as follows: 20 931 and th. euro 17 014, respectively. These balances, weighted by Banco BPI´s effective holding in these companies, 2003 2002 amount to th. euros 11 015 and th. euro 7 099, respectively. Legal reserve 25 369 21 416 The reserves are included in the caption CONSOLIDATION RESERVES. Free reserves 20 668 45 457 Merger reserves (2 463) 7 360 The caption CONSOLIDATION RESERVES reflects the difference 43 574 74 233 Consolidation reserves 28 567 (92 260) between the amount corresponding to Banco BPI’s effective 72 141 (18 027) participation in the equity of the associated and subsidiary companies and the cost of the investments, after making the In accordance with Article 97 of the General Regime for Credit adjustments considered necessary. Institutions and Financial Companies, approved by Decree-Law 298 / 91 of 31 December and changed by Decree-Law 201 / From 31 December, 2001 to 31 December, 2003 the movement / 2002 of 25 September, Banco BPI must appropriate at least in this caption was as follows: 10% of its net income each year to a legal reserve until the amount of such reserve equals the greater of the amount of Reserves as of 31 December, 2001 (71 273) share capital or the sum of the free reserves plus retained Consolidated net profit for 2001 133 283 earnings. Dividends paid in 2002 (57 875) Provisions for equity investments (Notice 4 / 2002) (19 000) From 31 December, 2001 to 31 December, 2003, the Changes in the revaluation reserves of the insurance companies (3 123) movement in MERGER RESERVES was as follows: Results' distribution to the Board of Directors (50) Others 11 Merger reserves as of 31 December, 2001 156 256 Reserves as of 31 December, 2002 (18 027) Corporate reorganisation of the BPI Group during 2002 (148 896) Consolidated net profit for 2002 140 069 Merger reserves as of 31 December, 2002 7 360 Dividends paid in 2003 (60 371) Changes to the reserve generated in 2002I (103) Provisions for equity investments (Notice 4 / 2002) 14 664 Merger of CrédiUniverso into Banco BPI (9 720) Changes in the revaluation reserves of the insurance companies 5 740 Merger reserves as of 31 December, 2003 (2 463) Results' distribution to the Board of Directors and Employees (89) Goodwill on the acquisition of a 50% participation in CrédiUniverso (6 601) Goodwill on the merger of Banco de Fomento Mozambique into Banco Comercial e de Investimentos (2 439) Others (805) Reserves as of 31 December, 2003 72 141
Consolidated financial statements | Notes 209 4.26. Goodwill Goodwill on the acquisition of a 50% participation in the share Goodwill on the merger of Banco Fomento Mozambique into capital of CrédiUniverso during the second half of 2003 was Banco Comercial e de Investimentos during 2003 was determined as follows: determined as follows:
Adjusted shareholders' equity of CrédiUniverso 3 598 Shareholders' equity of Banco Comercial e de Investimentos 25 985 Shareholders' equity of CrédiUniverso acquired Shareholders' equity of Banco Comercial e de Investimentos by Banco BPI (50%) 1 799 acquired by Banco BPI (30%) 7 796 Cost of the investment acquired by Banco BPI (8 400) Banco BPI's investment in Banco de Fomento Mozambique (10 234) Goodwill (6 601) Goodwill (2 439)
4.27. Provisions The movement in the Group's provisions during 2003 was as follows:
Balances Currency Balances at Increases Transfers Write offs Reversals fluctuations at 31-12-02 and others 31-12-03 Provisions for doubtful debts For loans and advances to Customers (note 4.4) 21 383 16 115 (2 740) (4 612) (3 621) (939) 25 586 For debtors and other placements (note 4.12) 55 (36) 19 Provisions for credit and interest in arrears For loans and advances to credit institutions (note 4.3) 99 790 (27) (16 841) 82 922 For loans and advances to Customers (note 4.4) 120 077 69 594 2 740 (70 598) (2 012) (1 468) 118 333 For securities (note 4.5) 341 41 (38) (129) (20) 195 Provisions for country risk For loans and advances to credit institutions (note 4.3) 28 (8) 20 For loans and advances to Customers (note 4.4) 1 142 (392) 750 For securities (note 4.5) 409 (409) 0 Provisions for unrealised losses on bonds and other fixed income securities (note 4.5) 5 184 195 (2 275) 3 104 Provisions for unrealised losses on shares and other variable-yield securities (note 4.6) 75 006 2 461 (2 308) (274) (9 987) (25) 64 873 Provisions for unrealised losses on associated companies 1 182 263 3 641 5 086 Provisions for unrealised losses on Other investments (note 4.9) 23 872 1 312 (860) 0 (3 727) 40 895 61 492 Other financial assets (note 4.12) 6 646 5 115 (473) (1 361) (28) (334) 9 565 Provisions for property received as settlement of defaulting loans (note 4.12) 7 238 203 (973) (995) 17 5 490 Provisions for retirement and survivor benefits (note 4.19) 14 541 4 886 (303) (677) (1 288) 17 159 Provisions for general credit risks (note 4.19) 188 397 4 252 (21 670) (1 039) 169 940 Provisions for other risks (note 4.19) 12 042 28 847 2 059 (204) (6 320) 213 36 637 Fund for general banking risks (note 4.19) 5 059 328 (2 059) (203) (2) (1 190) 1 933 582 392 133 612 0 (78 566) (52 315) 17 981 603 104
The amounts in the currency fluctuations and others column at Bank of Portugal Notice 8 / 2003 of 30 January changed the
31 December, 2003 for the captions PROVISIONS FOR UNREALISED rate used to provide for general credit risks on mortgage loans
LOSSES ON ASSOCIATED COMPANIES and PROVISIONS FOR UNREALISED to finance the borrower’s residence, from 1% to 0.5%. The
LOSSES ON OTHER FINANCIAL ASSETS include th. euro 40 863 relating decrease of th. euro 27 167 in the provision was transferred in to provisions recorded by charge against reserves, under the full to the provision for specific credit risks (credit in arrears and terms established by Bank of Portugal Notice 4 / 2002 (notes credits of doubtful collection). 2.4, 4.24 and 4.25).
210 Banco BPI | Annual Report 2003 The movement in the Group's provisions during 2002 was as follows:
Balances Currency Balances at Increases Transfers Write offs Reversals fluctuations at 31-12-01 and others 31-12-02 Provisions for doubtful debts For loans and advances to Customers (note 4.4) 4 403 7 319 (562) (6 192) 16 415 21 383 For debtors and other placements (note 4.12) 21 34 55 Provisions for credit and interest in arrears For loans and advances to credit institutions (note 4.3) 118 928 (322) (975) (17 841) 99 790 For loans and advances to Customers (note 4.4) 91 756 65 769 262 (28 464) (8 327) (919) 120 077 For securities (note 4.5) 439 217 (297) (9) (9) 341 Provisions for country risk For loans and advances to credit institutions (note 4.3) 27 5 (4) 28 For loans and advances to Customers (note 4.4) 2 715 50 (1 623) 1 142 For securities (note 4.5) 409 409 For other placements (note 4.12) 27 821 (27 821) 0 Provisions for unrealised losses on bonds and other fixed income securities (note 4.5) 3 622 2 251 (1) (689) 1 5 184 Provisions for unrealised losses on shares and other variable-yield securities (note 4.6) 16 147 17 516 44 139 (782) (1 986) (28) 75 006 Provisions for unrealised losses on associated companies 938 (258) 502 1 182 Provisions for unrealised losses on Other investments (note 4.9) 6 468 45 (22) (1 847) 19 228 23 872 Other financial assets (note 4.12) 2 626 4 187 (167) 6 646 Provisions for property received as settlement of defaulting loans (note 4.12) 6 872 536 (38) (132) 7 238 Provisions for retirement and survivor benefits (note 4.19) 9 442 4 546 553 14 541 Provisions for general credit risks (note 4.19) 180 896 19 280 299 (11 732) (346) 188 397 Provisions for other risks (note 4.19) 54 680 2 908 (44 138) (178) (1 230) 12 042 Fund for general banking risks (note 4.19) 6 658 6 063 (7 552) (50) (60) 5 059 534 868 130 726 0 (37 914) (62 617) 17 329 582 392
The reversal in the caption PROVISIONS FOR COUNTRY RISK – OTHER LOSSES ON OTHER FINANCIAL ASSETS include th. euro 19 000 relating
PLACEMENTS at 31 December, 2002 corresponds to the reversal of to provisions recorded by charge against reserves, under the a provision to cover the transfer risk of the shareholders’ equity terms established by Bank of Portugal Notice 4 / 2002 (notes of the Luanda Branch of Banco BPI. The reversal is due to the 2.5 and 4.25). fact that, in the transformation of Banco BPI’s Luanda Branch into an Angolan bank, Banco BPI converted part of the net At 31 December, 2002 currency fluctuations and others assets transferred into a credit over the new bank, which is includes th. euro 18 492 relating to the acquisition of Fundo guaranteed by a deposit in euros. EFTA’s credits.
The amounts in the currency fluctuations and others column at The provisions used during 2003 and 2002 for loans and
31 December, 2002 for the captions PROVISIONS FOR UNREALISED advances to Customers and for securities correspond to write-offs
LOSSES ON ASSOCIATED COMPANIES and PROVISIONS FOR UNREALISED in these periods.
Consolidated financial statements | Notes 211 4.28. Off-balance sheet items At 31 December, 2003 and 2002 the caption RESPONSIBILITIES
This caption is made up as follows: FOR RETIREMENT PENSIONS NOT COVERED BY THE PENSION FUNDS corresponds in full to the increase in the liability resulting from 2003 2002 non utilization of incapacity decreases in the calculation of the Guarantees provided and other contingent liabilities past service liability relating to current Employees (note 4.20). Guarantees and sureties 2 836 525 3 045 337 Documentary credits 70 464 77 010 At 31 December, 2003 and 2002 the caption COMMITMENTS TO Acceptances and endorsements 368 Sureties and indemnities 55 66 THE DEPOSIT GUARANTEE FUND corresponds to BPI’s irrevocable Other contingent liabilities responsibility to pay the Fund, upon request by it, the part of 2 907 044 3 122 781 the annual contributions not yet paid and expensed. Assets given as collateral 584 428 322 910 Commitments to third parties At 31 December, 2003 and 2002 the caption POTENTIAL
Irrevocable commitments COMMITMENTS TO THE INVESTOR INDEMNITY SYSTEM corresponds to the Options on assets 26 075 irrevocable obligation assumed by BPI, under the applicable Irrevocable credit lines 35 168 54 475 legislation, to pay the System, if required to do so, the amounts Underwriting commitment 24 500 24 500 necessary to indemnify the investors. Responsabilities for retirement pensions (note 4.20) 85 529 87 880 Commitments to the Deposit Guarantee Fund 32 560 25 621 The caption OPTIONS ON ASSETS at 31 December, 2003 Potential commitments to the Investor corresponds to share options issued by the BPI Group under Indemnity System 11 174 9 957 the Variable Remuneration Programme (RVA). Other irrevocable commitments 2 418 14 848 Revocable commitments 3 232 282 2 929 187 At 31 December, 2003 the BPI Group had the following third 3 449 706 3 146 468 party assets under its management: Responsabilities for services provided Custody and safekeeping 24 692 552 19 172 830 Investment funds and PPRs (Retirement Plan Funds) 4 167 156 Amounts for collection 275 748 286 213 Pension funds1 2 098 999 Assets managed by the institution 4 003 656 3 482 376 Capitalisation products 1 394 809 Other 0 11 795 1) Includes the Group companies' pension funds. 28 971 956 22 953 214 The BPI Group carries out derivative operations in the normal
At 31 December, 2003 the caption ASSETS GIVEN AS COLLATERAL course of its business, managing its own positions based on the includes: expected evolution of the markets, to meet the specific needs of its Clients, or in order to hedge its exposure. th. euro 102 906 relating to securities given in guarantee of loans from the European Investment Bank (EIB) to Banco BPI; The BPI Group operates with financial derivatives, namely foreign exchange contracts, interest rate contracts, commodities th. euro 37 135 relating to securities given in guarantee of contracts and contracts on shares or indexes. These operations interest rate swaps between the EIB and Banco BPI; are carried out in over-the-counter (OTC) markets and in organised markets (especially stock exchanges). th. euro 395 076 relating to securities given in guarantee to the Bank of Portugal to operate on the System for Settlement Derivatives are negotiated in organised markets in accordance of Large Transactions (Sistema de Pagamento de Grandes with those markets’ own rules. Derivatives are negotiated in the Transacções); OTC market, normally based on a standard bilateral contract (an ISDA contract in the case of interprofessional transactions and a th. euro 33 699 relating to securities given as guarantee to the contract prepared by BPI in the case of transactions with Deposit Guarantee Fund; Customers) which covers the derivative operations between the parties and establishes the compensation of responsibilities in th. euro 4 662 relating to securities given in guarantee to the case of non compliance (the extent of the compensation Euronext to carry out derivate operations, and being covered by the contract and regulated by law).
th. euro 5 575 relating to securities given in guarantee to BDP.
212 Banco BPI | Annual Report 2003 These transactions can be recorded by their book value, gross The book value of derivative operations is merely a volume replacement value and net market value. The book value is measure for the different markets, and it is not possible to based on the notional amount used in the calculation of the establish a direct connection between this value and the credit cash flows resulting from the underlying operations. The gross risk of the operation. The credit risk of derivative operations is replacement value corresponds to the present value of the given by the positive gross replacement value. In futures estimated loss, should the counterparty of each derivative contracts, the stock markets being the counterparties for the BPI transaction fail to meet its obligations. In the case of a Group’s operations, the credit risk is eliminated daily through derivative contract that provides for the compensation of financial settlement. For medium and long term derivatives, responsibilities in the event of non-compliance, the gross contracts usually anticipate the possibility of netting outstanding replacement value is the sum of the market values of the balances with the same counterparty, which eliminates or operations covered by the contract, when positive. In case of reduces the credit risk. Additionally, in order to reduce the credit operations where the contract does not establish the risk in OTC derivatives, some agreements have been signed compensation of responsibilities (usually for short-term under which the Bank receives from (or transfers to) the derivatives), the gross replacement value is equal to the sum of counterparty, assets (in cash or in securities) to guarantee the each individual transaction market value, if positive. The scope fulfilment of its obligations. of the compensation clauses, in case of default, is considered by the BPI Group in a conservative perspective, considering that, in Derivative operations are mostly associated with other operations case of doubt, compensation does not exist. The net market relating to assets and liabilities included in the financial value (fair value) corresponds to the value of the derivatives if statements. The evaluation of these operations must take this they were sold or purchased in the market place on the reference association into account. date. Besides these values, that provide information about the relative importance of the derivatives portfolio in the Group’s activity, it is also included the balance sheet value of this portfolio (accrued interest and premiums and revaluations).
Whereas in normal loan operations the market value corresponds directly to the amount loaned, in derivatives operations, with determined cash flows, the market value is based on the net present value of those cash flows, given the market yield curve at the time of the calculation (swaps and forward contracts) or is determined by the market (futures). In the case of options, market value is determined through the application of models that reflect the price and the price volatility of the underlying assets at the time of the calculation and the characteristics inherent to those options (strike price and maturity).
Consolidated financial statements | Notes 213 At 31 December, 2003 and 2002 the BPI Group's derivative operations were as follows:
2003 2002
Notional Book Gross repla- Net market Notional value1 value2 cement value3 value4 value1 Currency contracts Hedging portfolio Outright forwards 229 223 (309) 2 505 (8 110) 154 177 Currency swaps 1 556 239 (62 335) 9 003 (62 504) 2 575 809 Medium and long term swaps 56 851 (3 020) 411 (3 514) 90 802 1 842 313 (65 664) 11 919 (74 128) 2 820 789 Interest rate contracts Trading portfolio Futures5 247 180 4 0 14 714 873 Medium and long term interest rate swaps 5 260 295 2 354 15 731 2 360 0 Hedging portfolio FRA (forward rate agreements) - - - - 100 000 Medium and long term interest rate swaps 8 490 766 160 255 270 912 227 629 11 484 972 of which: [hedging of demand deposits core positions] [1 000 000] [6 452] [194] [2 298] - Options bought 3 750 16 164 164 3 750 14 001 990 162 629 286 807 230 167 12 303 595 Contracts on shares Trading portfolio Futures5 27 998 (7) 0 (608) 12 698 Hedging portfolio Options bought6 626 588 43 661 18 913 18 913 916 629 Options sold6 17 775 (1 826) 0 (1 630) 76 309 672 361 41 827 18 913 16 675 1 005 636 Contracts on commodities Trading portfolio Futures5 341 (18) 0 (2) 81 341 (18) 0 (2) 81 16 517 004 138 774 317 639 172 711 16 130 101 Credit risk reduction agreements on derivatives 0 0 (178 409) 0 0 Netting effect7 0 0 (30 359) 0 0 16 517 004 138 774 108 870 172 711 16 130 101 1) Off-balance sheet value. 2) Impact on the balance sheet of derivative operations. 3) Sum of the replacement amounts of the counterparties, considering compensation terms, when they exist. 4) Sum of the market values of the operations at the reference date. 5) The replacement cost of the futures is zero, because they are traded on organised stock exchanges. 6) Does not include options on bonds sold or bought. 7) Effect of compensating replacement values with the same counterparty, but recorded on different lines in the table.
214 Banco BPI | Annual Report 2003 At 31 December, 2003 the notional value by term remaining to maturity was as follows:
> 3 months > 6 months > 1 year < = 3 months > 5 years Total < = 6 months < = 1 year < = 5 years
Currency contracts Hedging portfolio Outright forwards 149 606 75 818 2 501 1 297 0 229 223 Currency swaps 1 340 931 114 261 101 047 0 0 1 556 239 Medium and long term swaps 7 498 0 0 49 353 0 56 851 1 498 035 190 079 103 549 50 650 0 1 842 313 Interest rate contracts Trading portfolio Futures 88 909 128 270 10 000 20 000 0 247 180 Medium and long term interest rate swaps 244 177 85 424 1 550 871 2 679 421 700 403 5 260 295 Hedging portfolio Medium and long term interest rate swaps 364 565 766 345 1 097 340 4 800 272 1 462 243 8 490 766 Options bought 0 0 0 3 750 0 3 750 697 651 980 039 2 658 211 7 503 443 2 162 646 14 001 990 Contracts on shares Trading portfolio Futures 27 998 000027 998 Hedging portfolio Options bought 9 965 93 795 35 003 487 825 0 626 588 Options sold 8 775 0 0 9 000 0 17 775 46 738 93 795 35 003 496 825 0 672 361 Contracts on commodities Trading portfolio Futures3 341 0000341 341 0000341 2 242 765 1 263 913 2 796 763 8 050 918 2 162 646 16 517 004
Consolidated financial statements | Notes 215 At 31 December, 2003 the profile of derivative operations by 4.29. Financial margin counterparty was as follows: This caption is made up as follows:
Book Notional 2003 2002 value value % Interest and similar income Currency contracts Interest on placements OTC with financial institutions (72 376) 1 561 687 9.0% With credit institutions 69 318 107 832 OTC with Customers 6 712 280 626 2.0% Loans 744 177 838 276 (65 664) 1 842 313 11.0% Securities 165 079 152 233 Interest rate contracts Other assets 756 808 OTC with financial institutions 135 649 13 335 374 81.0% Credit in arrears 6 894 8 308 OTC with Customers 26 976 419 436 3.0% Interest on swap operations 486 420 469 174 On the Stock Exchange 4 247 180 1.0% Other interest and similar income 18 185 28 226 162 629 14 001 990 85.0% 1 490 829 1 604 857 Contracts on shares Income from securities 6 751 10 393 OTC with financial institutions 41 834 644 363 4.0% Interest and similar expenses On the Stock Exchange (7) 27 998 0.0% Interest expense on funds raised 41 827 672 361 4.0% From credit institutions 194 092 229 953 Contracts on commodities Deposits 202 240 258 560 On the Stock Exchange (18) 341 0.0% Debt securities 97 732 106 485 (18) 341 0.0% Other resources 61 898 138 774 16 517 004 100.0% Interest expense on own funds and equivalents 23 802 28 808 Contributions to the Deposit Guarantee Fund 2 313 2 331 Interest on swap operations 475 612 460 975 At 31 December, 2003 the profile of derivative operations by Other interest and similar expenses 27 202 39 647 counterparty external rating was as follows: 1 023 054 1 127 657
2003 2002
Notional Gross Repla- Net market Notional value cement value value value Traded on OTC AAA 700 811 6 573 (5 211) 1 220 809 AA 9 516 731 89 937 24 505 5 383 862 A4 827 393 127 322 101 115 7 745 700 BBB 33 666 315 315 66 099 N.R. 1 162 885 63 132 52 585 985 979 16 241 486 287 279 173 308 15 402 450 Traded on stock exchanges 275 518 0 (597) 727 651 16 517 004 287 279 172 711 16 130 101 Credit risk reduction agreements on derivatives 0 (178 409) 0 0 16 517 004 108 870 172 711 16 130 101 Note: The amounts were accumulated by rating levels of the counterparties, considering the senior medium and long term debt ratings attributed by the Moody, Standard & Poor and Fitch agencies as of the reference date. The selection of a rating for a given counterparty follows the rules recommended by the Basel Committee in force on the reference date (where there are diverging ratings it was selected the second best). In terms of mapping it was considered a perfect correspondence between the levels attributed by the three agencies as from the top (Aaa = AAA; Aa1 =AA+; etc). The operations with entities without ratings (N.R.) correspond essentially to Clients with internal ratings.
216 Banco BPI | Annual Report 2003 4.30. Net commissions 4.31. Net profit on financial operations This caption is made up as follows: This caption is made up as follows:
2003 2002 2003 2002
Commissions received Gains on financial operations On guarantees provided 23 819 22 679 Gains and differences on the revaluation of the foreign exchange position 259 164 194 933 On commitments to third parties 5 386 4 886 Gains and differences on the revaluation On banking services provided 154 162 143 003 of placements 398 301 330 351 On factoring operations 2 858 2 966 Differences on the revaluation of third party On operations realised on behalf of third parties 17 280 14 517 resources 337 248 236 309 Other 21 118 19 013 Gains on off-balance sheet operations 55 765 48 285 224 623 207 064 Other 86 542 204 128 Commissions paid 1 137 020 1 014 006 On banking services provided by third parties 14 016 12 869 Losses on financial operations On operations realised by third parties 3 769 7 882 Losses and differences on the revaluation of the foreign exchange position 244 678 196 761 Other 2 145 1 224 Losses and differences on the revaluation 19 930 21 975 of placements 385 975 291 051 Differences on the revaluation of third party resources 334 168 277 904 Losses on off-balance sheet operations 45 098 52 382 Other 90 924 176 360 1 100 843 994 458
The caption GAINS ON OFF-BALANCE SHEET OPERATIONS at 31 December, 2003 and 2002 includes th. euro 14 738 and th. euro 20 127, respectively, relating to premiums received due to early step-up and renegotiation of swap conditions.
At 31 December, 2003 the caption OTHER GAINS ON FINANCIAL
OPERATIONS and OTHER LOSSES ON FINANCIAL OPERATIONS, include th. euro 38 254 and th. euro 39 023, respectively, related to the operations Capital Seguro and Risco Limitado. At 31 December,
2002 the caption OTHER GAINS ON FINANCIAL OPERATIONS and OTHER
LOSSES ON FINANCIAL OPERATIONS, include th. euro 96 125 and th. euro 96 047, respectively, related to the operations Capital Seguro and Risco Limitado.
Consolidated financial statements | Notes 217 4.32. Personnel costs 4.33. Other operating income and other operating expenses This caption is made up as follows: These captions are made up as follows:
2003 2002 2003 2002
Remuneration of management and supervisory bodies 7 714 8 317 Other operating income Employee remuneration 210 188 209 810 Income from real estate 2 055 1 118 Social charges Remuneration from serving on management bodies 11 16 Mandatory 59 468 59 858 Sundry services rendered 8 747 9 352 Optional 2 621 2 790 Reimbursement of expenses 28 217 28 956 Other personnel costs 4 586 4 886 Gains on leased assets 1 505 942 284 577 285 661 Recovery of loans and interest in arrears 20 619 14 678 Other 15 183 13 225 The caption PERSONNEL COSTS at 31 December, 2003 and 2002 76 337 68 287 includes the full amount of the variable remuneration cost, Other operating expenses namely the cost of implementing the Variable Remuneration Subscriptions and donations 3 077 2 784 Programme (RVA) in the years 2003 and 2002 (note 2.18). Remuneration of participating securities 140 140 Losses on leased assets 1 658 804 Other 8 079 4 158 12 954 7 886
218 Banco BPI | Annual Report 2003 4.34. Extraordinary income and expenses 4.35. Income tax These captions are made up as follows: The tax rate, measured by the relationship between the provision for income tax and profit before income tax, was as follows: 2003 2002
Extraordinary income 2003 2002 Gains on the sale of investments and fixed assets 15 887 24 923 Income tax 23 629 44 743 Indemnities due to non-compliance with contracts 301 96 Profit for the year before income tax1 181 901 186 729 Other prior year income 6 919 16 689 Effective tax rate 13.0% 24.0% Other extraordinary income 5 932 1 530 1) Includes profit before income tax and minority interests and excludes profits on 29 039 43 238 subsidiary companies excluded from the consolidation. Extraordinary expenses Losses on the sale of fixed assets 204 3 942 The decrease in the effective tax rate in 2003 reflects utilisation Other losses on fixed assets 5 2 421 of Banco BPI’s tax losses carried forward following the Fines and other legal penalties 139 112 restructuring operation of the BPI Group in December 2002. Losses arising from theft, loss and falsification 437 363 Indemnities due to non-compliance with contracts 64 32 Profits generated by the Off-shore Financial Branches of the Prior year expenses 27 010 20 858 Group during 2003 and 2002, which are exempt from taxation, Other extraordinary expenses 20 050 20 834 were as follows: 47 909 48 562 2003 2002
Funchal Financial Branch 2 799 7 836 At 31 December, 2003 the caption GAINS ON THE SALE OF Santa Maria Financial Branch 17 442 2 821 INVESTMENTS AND FIXED ASSETS includes th. euro 9 184 and th. euro 5 117 relating to gains on the sale of investments in Banc Post and Barbosa & Almeida, respectively. At 31 December, 2002 this caption includes th. euro 12 107 and th. euro 9 892 relating to gains on the sale of BPI Group investments in Brisa and BVLP, respectively.
At 31 December, 2003 and 2002 the caption OTHER
EXTRAORDINARY EXPENSES includes th. euro 25 794 and th. euro 19 036 relating to the coverage of the liability for retirement and survivor pensions, respectively (note 4.20). At 31 December,
2003 and 2002, the caption OTHER EXTRAORDINARY EXPENSES also includes th. euro 10 832 and th. euro 12 978 corresponding to other costs relating to early retirements in 2003 and 2002, respectively.
Consolidated financial statements | Notes 219 4.36. Consolidated net profit Consolidated net profit for 2003 and 2002 is made up as follows:
2003 2002
Banco BPI’ net profit (non-consolidated)1 145 532 118 018 BPI Investimentos’ net profit (non-consolidated) 5 280 11 174 Banco Comercial e de Investimento S.A R.L’s net profit (non-consolidated)2 488 4 347 Banco de Fomento S.A.R.L.’s (Angola) net profit (non-consolidated)3 16 693 11 205 Banc Post net profit (non-consolidated) 590 848 Banco BPI Cayman Ltd’ s net profit (non-consolidated) 5 399 Contribution of Banco BPI’ subsidiary and associated companies (excluding the banks) to the consolidated net profit 26 053 20 172 Profit / (loss) generated by recovery of the adjustments considered in the goodwill paid on the acquisition of BFE relating to: – Sundry provisions 132 Reversal of the amortisation of the contributions to the pension fund in Banco BPI, already charged to reserves in the consolidated accounts 14 685 Elimination of provisions (4 695) 5 317 Elimination of dividends (25 384) (41 204) Elimination of gains and losses on the sale of equity investments (7 386) (761) Other consolidation adjustments 1 273 (3 864) 163 843 140 069 1) In 2002, net profit includes the net results of all the companies incorporated within Banco BPI on 31 December, 2002. 2) Includes the net profit of Banco de Fomento S.A.R.L. (Mozambique) in 2002 and until 30 November, 2003. 3) In 2002, the net result of Banco de Fomento S.A.R.L (Angola) in the first half of 2002 is included in Banco BPI’s net profit.
220 Banco BPI | Annual Report 2003 The contribution of Banco BPI and its subsidiary and associated companies to the consolidated net profit of 2003 and 2002, is as follows:
2003 2002
Amount % Amount % Banks Banco BPI, S.A.1, 2 107 334 65.5 110 690 79.0 Banco Português de Investimento, S.A.1 5 263 3.2 (3 220) (2.2) Banco Comercial e de Investimentos, S.A.R.L.1 (1 797) (1.1) 2 274 1.6 Banco de Fomento S.A.R.L. (Angola)1 20 554 12.5 10 539 7.5 Banco Post S.A.1, 3 1 182 0.7 (330) (0.2) Banco BPI Cayman, Ltd. 5 399 3.3 Specialised loan companies BPI Locação de Equipamentos, Lda. 276 0.2 15 0.0 BPI Rent – Comércio e Aluguer de Bens, Lda. 922 0.5 318 0.2 Eurolocação – Comércio e Aluguer de Veículos e Equipamentos, S.A. (2) 0.0 57 0.0 Asset management companies and dealers BPI Dealer – Sociedade Financeira de Corretagem (Mozambique), S.A.R.L.1 (6) 0.0 (13) 0.0 BPI Fundos – Gestão de Fundos de Investimento Mobiliários, S.A. 11 664 7.1 12 643 9.0 BPI – Global Investment Fund Management Company, S.A. 276 0.2 812 0.6 BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 2 003 1.2 1 983 1.4 Sofinac – Sociedade Gestora de Fundos de Investimento Imobiliário, S.A. 267 0.2 193 0.1 BPI (Suisse), S.A.1 (927) (0.6) (353) (0.2) Venture capital companies F. Turismo – Capital de Risco, S.A. 37 0.0 52 0.0 Inter-Risco – Sociedade de Capital de Risco, S.A.1 (1 614) (1.0) (1 299) (0.9) Solo – Investimentos em Comunicação, SGPS, S.A. (43) 0.0 (10) 0.0 Insurance companies BPI Vida – Companhia de Seguros de Vida, S.A. 4 022 2.5 2 407 1.7 Cosec – Companhia de Seguros de Crédito, S.A. 575 0.4 750 0.5 Companhia de Seguros Allianz Portugal, S.A. 4 577 2.8 (808) (0.6) Others BPI, Inc.1 83 0.1 (12) 0.0 BPI Madeira, SGPS, Unipessoal, S.A.1 4 0.0 (2) 0.0 Douro SGPS, S.A. 271 0.2 (54) 0.0 Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 401 0.2 425 0.3 Promática – Sociedade de Informação e Organização de Empresas, S.A. (417) (0.3) 229 0.2 Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda. (14) 0.0 (20) 0.0 Digitmarket – Serviços de Informação, S.A.1 (595) (0.4) Viacer – Sociedade Gestora de Participações Sociais, Lda. 3 553 2.2 3 398 2.4 163 843 100.0 140 069 100.0 1) Adjusted profit. 2) In 2003, CrédiUniverso merged into Banco BPI. In 2002, Banco BPI’ s net profit corresponds to the sum of the contributions of Banco BPI and CrédiUniverso. 3) This investment was sold during 2003. In 2003, the contribution corresponds to Banc Post’s net profit until 31 August, 2003.
Consolidated financial statements | Notes 221 4.37. Breakdown by geographical markets and business segments At 31 December, 2003 the breakdown of BPI Group figures by geographical markets is as follows:
Portugal Rest of Rest of Africa Rest of the Inter-segment Total European Union Europe world1 operations Interest and similar income 1 355 668 30 715 166 34 268 211 243 -141 231 1 490 829 Interest and similar expenses 947 423 17 888 3 751 195 223 -141 231 1 023 054 Comissions (income) 212 406 6 398 6 031 457 -669 224 623 Comissions (expenses) 17 698 932 3 1 931 36 -669 19 931 Income from securities 6 751 6 751 Gains on financial operations 958 139 1 038 20 171 274 6 549 1 137 020 Losses on financial operations 934 933 98 78 159 062 6 672 1 100 843 Reversals of provisions and write-offs2 42 406 2 081 1 721 2 352 48 560 Provisions for credit in arrears and other risks2 109 508 140 9 103 8 171 126 922 Other operating income 63 953 177 12 202 5 76 337 Net profit 163 843 Loans granted to Customers (net) 16 628 379 586 090 131 434 292 443 17 638 346 Amounts owed to Customers 9 643 267 167 379 489 771 2 055 215 12 355 632 Total net assets 26 195 261 1) The amounts in the column “Rest of European Union” corresponds essentially to Madrid and Paris branches. The amounts in the column “Rest of the World” correspond to the companies with head-office located in Cayman (BBPI Cayman branch, Banco BPI Cayman and BPI Capital Finance). 2) Does not include provisions for equity investments.
At 31 December, 2003 the breakdown of BPI Group figures by business segments1 is as follows:
Corporate Trading Broke- Retail Banking2 Commer- Payments Custody Asset Others Inter- Total finance & sales rage cial3 and manage- -segment (retail) Domestic Abroad banking settlements ment operations Interest and similar income 11 700 066 24 464 619 34 245 294 451 454 7 320 -10 361 1 490 829 Interest and similar expenses 3 797 501 11 177 839 3 740 26 368 20 372 7 581 -10 361 1 023 054 Comissions (income) 3 949 1 759 3 745 113 747 6 031 49 715 10 855 3 188 31 799 1 975 -2 140 224 623 Comissions (expenses) 3 2 976 11 517 1 930 1 430 564 1 375 2 211 64 -2 140 19 930 Income from securities 1 759 5 009 -17 6 751 Gains on financial operations 964 740 1 20 171 274 985 1 137 020 Losses on financial operations 941 456 13 176 159 049 149 1 100 843 Reversals of provisions and write-offs4 48 560 Provisions for credit in arrears and other risks4 126 922 Other operating income 56 6 186 39 798 12 202 16 218 165 286 1 426 76 337 Net profit 163 843 Loans granted to Customers (net) 1 180 16 926 10 637 904 131 433 6 832 607 6 257 23 418 -11 379 17 638 346 Gross Amount 1 962 17 025 10 710 928 132 381 6 899 714 6 735 25 649 -11 379 17 783 015 Provisions 782 99 73 024 948 67 107 478 2 231 144 669 Amounts owed to Customers 1 501 40 271 8 824 525 489 771 1 604 236 1 111 738 319 162 -35 572 12 355 632 Total net assets 26 195 261 1) Segmentation by business lines as defined in Bank of Portugal Instruction no. 11/ 2003. 2) The figures relating to domestic Retail Banking essentially correspond to the activity of Individuals and Small Businesses Banking. 3) The figures relating to Commercial Banking essentially correspond to Corporate Banking activity 4) Does not include provisions for equity investments.
222 Banco BPI | Annual Report 2003 4.38. Personnel 5. EXPLANATION ADDED FOR TRANSLATION The average and end of period number of Employees1 during The accompanying financial statements are a translation of 2003 and 2002 is as follows: financial statements originally issued in Portuguese in accordance with generally accepted accounting principles in 2003 2002 Portugal and the disclosures required by the Portuguese Chart Average of End of the Average of End of the the period period the period period of Accounts for the Banking System, some of which may not conform with or be required by generally accepted accounting Members of the Board of Directors 14 14 17 14 Management staff 511 502 545 504 principles in other countries. In the event of discrepancies, the Other staff 3 277 3 180 3 220 3 177 Portuguese language version prevails. Other Employees 3 528 3 208 3 870 3 685 7 330 6 904 7 652 7 380 1) Employees of the Group companies consolidated by the full consolidation method. Employees of foreign branches of Banco BPI are also included.
4.39. Loans and advances to the Directors of Banco BPI In accordance with the Bank’s policy the members of the Executive Committee of the Board of Directors of Banco BPI are entitled to participate in the Subsidised Housing Loan Scheme available to all the banks’ Employees. At 31 December, 2003 the outstanding mortgage own housing loans granted to the members of the Executive Committee of the Board of Directors by banks of the Group amounted to th. euro 972.
Consolidated financial statements | Notes 223 Legal certification of accounts and audit report
MAGALHÃES, NEVES E ASSOCIADOS, SROC S.A.
Inscrição na OROC n.º 95 Registo na CMVM n.º 223 NIPC 502 558 610 Capital Social 50 000 euros Matriculada na CRC de Lisboa sob o n.º 12.179
LEGAL CERTIFICATION OF ACCOUNTS AND AUDIT REPORT CONSOLIDATED ACCOUNTS
(Amounts expressed in thousands of euro – th. euro)
Introduction 1. Pursuant to the applicable legislation, we present our Legal Certification of Accounts and Audit Report on the consolidated financial information included in the Directors’ Report and the accompanying consolidated financial statements of Banco BPI, S.A. (previously named BPI – SGPS, S.A., its corporate name and purpose having been changed on December 20, 2002 – note 1) for 2003, which comprise the consolidated balance sheet as of December 31, 2003, which reflects a total of th. euro 26 195 261 and shareholders’ equity of th. euro 1 227 290, including net profit for the year of th. euro 163 843, the consolidated statements of income by nature and by functions and the consolidated statement of cash flows for the year then ended and the corresponding notes.
Responsibilities 2. The Board of Directors of Banco BPI, S.A. (“the Bank”) is responsible for: (i) the preparation of consolidated financial statements that present a true and fair view of the financial position of the companies included in the consolidation, the consolidated results of their operations and their consolidated cash flows; (ii) the preparation of historical financial information in accordance with generally accepted accounting principles and that is complete, true, up-to-date, clear, objective and licit, as required by the Securities Market Code (Código dos Valores Mobiliários); (iii) adopting adequate accounting policies and criteria and maintaining appropriate systems of internal control; and (iv) informing of any significant facts that have influenced the operations of the companies included in the consolidation, their financial position or results of operations.
3. Our responsibility is to examine the financial information contained in the documents of account referred to above, including verification that, in all material respects, the information is complete, true, up-to-date, clear, objective and licit, as required by the Securities Market Code, and to issue a professional and independent report based on our examination.
Scope 4. Our examination was performed in accordance with the auditing standards (“Normas Técnicas e Directrizes de Revisão/Auditoria”) issued by the Portuguese Institute of Statutory Auditors (“Ordem dos Revisores Oficiais de Contas”), which require that the audit be planned and performed with the objective of obtaining reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our examination included verifying, on a test basis, evidence supporting the amounts and disclosures in the financial statements and assessing the significant estimates, based on judgements and criteria defined by the Board of Directors, used in their preparation. Our examination also included verifying the consolidation procedures used, the application of the equity method and verifying that the financial statements of the companies included in the consolidation were adequately examined, assessing the adequacy of the accounting principles used, their uniform application and their disclosure considering the circumstances, verifying the applicability of the going concern concept, assessing the adequacy of the overall presentation of the consolidated financial statements, and verifying that, in all material respects, the financial information is complete, true, up-to-date, clear, objective and licit. Our examination also included verifying that the consolidated financial information included in the Directors’ Report is consistent with the other consolidated documents of account. We believe that our examination provides a reasonable basis for expressing our opinion.
Sede em Lisboa: Amoreiras – Torre 1 – 7.º – 1070-101 Lisboa Telefone 21 387 00 15 Escritório no Porto: Av. da Boavista, 3523 – 1.º – 4100-139 Porto Telefone 22 610 11 79
224 Banco BPI | Annual Report 2003 MAGALHÃES, NEVES E ASSOCIADOS, SROC S.A. – 2 –
Opinion 5. In our opinion, the consolidated financial statements referred to in paragraph 1 above, present fairly, in all material respects, the consolidated financial position of Banco BPI, S.A. as of December 31, 2003 and the consolidated results of its operations and its consolidated cash flows for the year then ended in conformity with generally accepted accounting principles in Portugal for the banking sector and the information included therein is complete, true, up-to-date, clear, objective and licit in accordance with the definitions included in the standards referred to in paragraph 4 above.
Emphases 6. As explained in greater detail in note 2.4, in 2002 the Bank of Portugal, through Notice 4 / 2002 of June 25, introduced a new methodology for determining unrealised losses on equity investments and the respective provisions required, having established a transitory regime for recording, on a gradual basis over a maximum period of five years, the provisions for investments already in the portfolio at December 31, 2001. In 2003 the Bank opted to complete recording the full amount of the provisions required by the Notice referred to above over a period of two years, that is up to December 31, 2003, having recorded th. euro 40 863 in 2003 by charge to the share premium account and reserves (notes 3.2, 4.24, 4.25 and 4.27). The provisions recorded in 2002 under this new regime amounted to th. euro 21 616, of which th. euro 19 000 was recorded by charge to reserves (notes 3.2, 4.25 and 4.27).
7. The consolidated financial statements for the year ended December 31, 2002 are presented by the Bank in order to comply with the requirements for publication of accounts. We have examined these financial statements and our opinion thereon, expressed in our report dated February 28, 2003, includes an emphasis paragraph regarding the matter referred to in paragraph 6 above.
Oporto, March 4, 2004
Magalhães, Neves & Associados, SROC S.A. Represented by Maria Augusta Cardador Francisco
Legal certification of accounts and audit report | 225 Auditor’s report
Amoreiras, Torre 1 - 15º 1070-101 Lisboa Portugal
Tel: +(351) 21 381 60 00 To the Shareholders of Fax: +(351) 21 387 80 11 Banco BPI, S.A. www.deloitte.com/pt
(Amounts expressed in thousands of euro – th. euro)
1. We have audited the accompanying consolidated financial statements of Banco BPI, S.A. (previously named BPI – SGPS, S.A., its corporate name and purpose having been changed on December 20, 2002 – note 1), which comprise the consolidated balance sheet as of December 31, 2003, the consolidated statements of income by nature and by functions and the consolidated statement of cash flows for the year then ended and the corresponding notes. These financial statements are the responsibility of the Board of Directors of Banco BPI, S.A. (“the Bank”). Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
2. Our audit was performed in accordance with generally accepted auditing standards in Portugal, which require that the audit be planned and performed with the objective of obtaining reasonable assurance about whether the financial statements are free of material misstatement. Our audit included verifying, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements and assessing the significant estimates, based on the judgement of and criteria defined by the Board of Directors, used in their preparation. Our audit also included verifying the adequacy of the accounting principles used and their disclosure, taking into consideration the circumstances, verifying the applicability of the going concern concept and evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
3. In our opinion, the consolidated financial statements referred to in paragraph 1 above, present fairly, in all material respects, the consolidated financial position of Banco BPI, S.A. as of December 31, 2003 and the consolidated results of its operations and its consolidated cash flows for the year then ended, in conformity with generally accepted accounting principles in Portugal for the banking sector.
4. As explained in greater detail in note 2.4, in 2002 the Bank of Portugal, through Notice 4 / 2002 of June 25, introduced a new methodology for determining unrealised losses on equity investments and the respective provisions required, having established a transitory regime for recording, on a gradual basis over a maximum period of five years, the provisions for investments already in the portfolio at December 31, 2001. In 2003 the Bank opted to complete recording the full amount of the provisions required by the Notice referred to above over a period of two years, that is up to December 31, 2003, having recorded th. euro 40 863 in 2003 by charge to the share premium account and reserves (notes 3.2, 4.24, 4.25 and 4.27). The provisions recorded in 2002 under this new regime amounted to th. euro 21 616, of which th. euro 19 000 was recorded by charge to reserves (notes 3.2, 4.25 and 4.27).
5. The consolidated financial statements for the year ended December 31, 2002 are presented by the Bank in order to comply with the requirements for publication of accounts. These financial statements were audited by us and our opinion thereon dated February 28, 2003, includes an emphasis paragraph regarding the matter referred to in paragraph 4 above.
Oporto, March 4, 2004
Audit • Tax • Consulting • Corporate Finance • A member firm of Deloitte Touche Tohmatsu Deloitte & Touche Quality Firm - Serviços Profissionais de Auditoria e Consultoria, S.A. Tipo: Sociedade Anónima - Capital Social: 200.000 euros - NIPC: 502 310 090 Matriculada na Conservatória do Registo Comercial de Lisboa sob o n.º 1295 Sede: Amoreiras, Torre 1 - 15.º, 1070-101 Lisboa
226 Banco BPI | Annual Report 2003 Report and opinion of the Audit Board
REPORT AND OPINION OF THE AUDIT BOARD CONSOLIDATED ACCOUNTS
To the Shareholders of Banco BPI, S.A.
In conformity with current legislation and our mandate, we present our Report and Opinion which covers the work performed by us and the consolidated documents of account of Banco BPI, S.A. (previously named BPI – SGPS, S.A., its corporate name and purpose having been changed on December 20, 2002) for the year ended December 31, 2003, for which the Board of Directors is responsible.
During 2003 we accompanied the evolution of the activities and business of Banco BPI, S.A. and its principal participated companies, the adequacy of their accounting records and their compliance with the requirements of their respective articles of association, having obtained from the Board of Directors and employees of the Bank and from the statutory boards and employees of the principal participated companies the information and explanations requested.
Within the scope of our functions we examined the consolidated balance sheet as of December 31, 2003, the consolidated statements of income by nature and by functions, the consolidated statement of cash flows and the accompanying notes, as well as the Directors’ Report prepared by the Board of Directors for the year then ended. In addition, we reviewed the Legal Certification of Accounts and Audit Report, prepared by the Statutory Auditor who is a member of this Board, with which we are in agreement.
Based on the above it is our opinion that, after considering the matter described in paragraph 6 of the Legal Certification of Accounts and Audit Report, the above mentioned consolidated financial statements and Directors’ Report, as well as the proposal included therein, are in compliance with the applicable accounting requirements and provisions of the articles of association and therefore can be approved by the Shareholders’ General Meeting.
We wish to thank the Board of Directors and employees of Banco BPI, S.A. for their co-operation.
Oporto, March 4, 2004
Jorge Figueiredo Dias President
José Ferreira Amorim Member
Magalhães, Neves e Associados, SROC, S.A. Represented by Maria Augusta Cardador Francisco Member
Auditor’s report and Report and opinion of the Audit Board | 227
The BPI Group’s Corporate Governance Report
The BPI Group’s Corporate Governance Report
Declaration of compliance 232
1. Introduction 233 2. Guiding principles of the BPI Group’s governance policy 234 3. Structure, division of duties and functioning of the BPI Group's principal management and control bodies 235 3.1. The structure of the Group's governance and supervision 235 3.2. General Meeting 236 3.3. Board of Directors 238 3.4. Executive Committee 244 3.5. Audit and Internal Control Committee 250 3.6. Audit Board 253 3.7. Remuneration Committee 254 3.8. Banco Português de Investimento's Management 255 3.9. BPI Group’s Governance Monitoring Committee 255 4. The Group’s functional organisation chart 256 5. Risk management 258 5.1. Principles of risk management 258 5.2. Division of responsibilities in risk control and management matters 258 6. External auditor 259 6.1. Independence 259 6.2. Remuneration 260 6.3. Other safeguard mechanisms 260 7. Remuneration 261 7.1. Remuneration policy 261 7.2. Remuneration of members of Banco BPI and Banco Português de Investimento Management Boards 261 7.3. Share incentive scheme (Portuguese initials “RVA”) 262 7.4. Pension plans of the Directors of the BPI Group’s Banks 271 7.5. Loans to members of the Board of Directors of Banco BPI 271 7.6. Insurance of Banco BPI’s Executive Directors 272 8. Shareholder control and transferability of shares 273 8.1. Shareholder control 273 8.2. Shareholder agreements relating to the exercise of company rights or to the transferability of shares 273 9. Exercise of voting rights and Shareholder representation 274 9.1. Encouraging the exercise of voting rights 274 9.2. Attribution of voting rights 274 9.3. Procedures relating to proxy representation 274 9.4. Procedures relating to postal voting 274 9.5. Procedures relating to voting via electronic means 275 10. Exercise of corporate rights by BPI Group entities 276 11. Code of ethics and professional conduct 277 11.1. Commitment to strict standards of ethics and professional conduct 277 11.2. Equity and safeguarding against conflict of interests 277 11.3. Violation of professional confidentiality 277 11.4. Stock brokerage activity 278 11.5. Combat against terrorism and money laundering 278 11.6. Prevention of insider trading 279 11.7. Business dealings between BPI and members of the Board of Directors, the Audit Board, the holders of qualified shareholdings or companies belonging to the Group 279 12. Communication with the market 280 12.1. Principles governing the disclosure of financial information and other important facts 280 12.2. Investor Relations Division 280 12.3. Internet website 281 12.4. Representative for market relations 282 13. Banco BPI share 283 13.1. Shareholder return 283 13.2. Trend in Banco BPI's share and communication of important facts to the market 283 14. Dividend policy 284
APPENDIX: Other management or supervisory positions occupied by members of Banco BPI's Management and Audit Board in other companies 285
– Correspondence between the CMVM’s rules and recommendations and the BPI’s corporate governance report 288 – Publications, communications and institutional events in 2004 289
Annexes | The BPI Group’s Corporate Governance Report 231 Declaration of compliance
BPI complies fully with the CMVM’s recommendations relating to: individualised indication of the percentage of variable remuneration which the share incentive and options scheme
the governance of quoted companies; (RVA) represents for each member of the Board of Directors’ Executive Committee in respect of the period covered by the
the exercise of postal voting in open companies; Report;
the disclosure of information via the Internet. individualised indication of the quantity of shares and options attributed to each member of the Board of Directors’ Executive The remuneration system of Banco BPI’s Board of Directors and Committee under the share incentive and options scheme its public disclosure comply with the principles and objectives (RVA). laid down in the CMVM’s Recommendations on Corporate Governance, namely Recommendation no. 8, without expliciting Having considered the interests of BPI and its present and the remuneration of each one of its members. future Shareholders, market needs and the objectives invoked in the CMVM’s recommendations, the Board of Directors’ Executive The present remuneration system (in force since 2001) is Committee is of the opinion that expliciting the individual described in a separate chapter of the Report and includes, for remuneration of its members does not add any important the members of the Board of Directors’ Executive Committee a information to these interests, needs and objectives vis-à-vis the variable component denominated in shares and options, with its practices already followed by the Bank. It has, however, own rules which are defined and made public in each financial accepted ahead of time the essence of CMVM Recommendation year. This component was created with the express goal of no. 8, in terms of which the remuneration of the members of the reinforcing the alignment of the Bank’s principal executives with management body must be structured in such a way to permit the Institution’s and Shareholders’ interests. an alignment of their interests with those of the company and must be the object of annual disclosure in individual terms. In turn, the information model about the Board of Directors’ remuneration conditions, adopted since 2001, includes the following details:
total, aggregate amount of all the remuneration earned by members of the Board of Directors, distinguishing between executive and non-executive members and between fixed and variable remuneration;
232 Banco BPI | Annual Report 2003 1. Introduction
Banco BPI’s Board of Directors hereby submits for the enumeration of the proposals presented at the Shareholders’ consideration of its Shareholders and the market its “Report on General Meeting in the last four years and respective voting, as the BPI Group’s Corporate Governance” for 2003, in compliance well as the preliminary agenda for the Annual General Meeting with its information and transparency duty, and in conformity to be held on 20 April 2004 and the channels available for with prevailing regulations. obtaining information about the event;
BPI’s Board of Directors has endeavoured to present a report the Investor Relations Division’s activity in 2003, including that is increasingly complete, with the concern of responding detailed information about the content and functionalities of positively to the initiatives1 of the Securities Market Commission the Investor Relations web site. (Comissão do Mercado de Valores Mobiliários – CMVM) and to refine the bank’s governance model and its reporting policy, in conformity with the orientations published by various European bodies, in particular, the European Commission.
Refinements to the 2003 Report Of all the improvements made to the BPI Group’s Corporate Governance Report, the following should be highlighted:
succinct description of the activity carried out and the principal decisions taken by Banco BPI’s governing bodies in 2003;
revision of the areas of responsibility and the rules for the functioning of Banco BPI’s Board of Directors, the Executive Committee of Banco BPI’s Board of Directors and of the Audit and Internal Control Committee, by virtue of the alterations to the respective regulations in 2003;
provision of complementary information about the remuneration of the members of the Board of Directors;
information about the remuneration and independence of Banco BPI’s external auditors;
in-depth review of the theme “ethics and professional conduct” namely, aspects associated with the prevention of conflicts of interest, violation of professional confidentiality, diligence and loyalty in stock broking activity, the combat against terrorism, money laundering and prevention of insider trading;
1) Embodied in the approval of CMVM Regulation no.11 / 2003 and in the revision of its “Recommendations on Corporate Governance”.
Annexes | The BPI Group’s Corporate Governance Report 233 2. Guiding principles of the BPI Group’s governance policy
Guiding principles of the BPI Group’s governance policy 1 Transparency in management Internal information – in such a manner that the members of the Board of Directors, the members of the Audit Board and the members of the Audit and Internal Control Committee can carry out their oversight and supervisory functions with simplicity and efficacy.
External information – in such a manner that the Shareholders, authorities, auditors, investors and the community can broadly assess the quality and conformity of the information provided and the results attained.
2 Independence
of the executive management vis-à-vis any individual Shareholder or specific interests.
3 Equity
in the relationship with Shareholders, Customers and Employees.
4 Loyalty
through the implementation of mechanisms which impede the occurrence of conflict of interest situations.
5 Efficiency
in the functioning and interaction of the company’s governing and supervisory bodies.
6 Rigour
in the management of the various risks underlying the Group’s operations.
7 Sharing
through the adoption of committee-type models in decision-making processes and in the fostering of team spirit.
8 Performance and merit
as fundamental criteria governing the remuneration policy as concerns Employees and Directors.
9 Harmony
in the alignment between the interests of the Shareholders and those of Directors and Employees.
10 Creation of value
as the ultimate goal of BPI’s Directors and Employees.
234 Banco BPI | Annual Report 2003 3. Structure, division of duties and functioning of the BPI Group's principal management and control bodies
3.1. THE STRUCTURE OF THE GROUP'S GOVERNANCE AND Internal Control Committee in 1999, which was recently SUPERVISION renamed the Audit and Internal Control Committee. The BPI Group's major strategic guidelines are defined by Banco BPI's Board of Directors. These guidelines, which are This body includes four non-executive directors, two of whom are periodically sanctioned by the Shareholders' General Meeting, deputy-chairmen of the Board of Directors and has as its chief are then implemented by the Executive Committee of Banco duties the appointment of the external auditors, the formulation of BPI’s Board of Directors whose activity is systematically annual programmes for the internal and external audits, the monitored by the latter monitoring of internal control procedures at the Group’s two Portuguese banks, and overseeing the areas whose activities give Thus, the Board of Directors approves the annual operating plan rise to the most important operating risks borne by the BPI Group. and budget, assesses the Group’s performance against the operating plan, deliberates about the taking of significant stakes The Audit Board is responsible for monitoring all of Banco BPI’s in financial institutions, the acquisition of large positions in the activity, ensuring compliance with the law and the company’s capital of other companies and monitoring the evolution of credit statutes. and market risks, appraises the management of the pension funds and evaluates the behaviour of the investment portfolio The Remuneration Committee fixes the remuneration of the and the management of the pension funds relative to the members of Banco BPI’s governing bodies, and evaluates the principal institutions which compete in the market and analyses members of the Executive Committee of Banco BPI’s Board of all the opinions of rating agencies, supervisory entities and Directors and Banco Português de Investimento’s Board of financial analysts with respect to the BPI Group’s activity. At the Directors for the purpose of calculating the respective annual plenary meetings – in 2003 seven such meetings were held – variable remuneration. the Group’s quarterly results and respective market announcements are approved. The Company Secretary, besides performing the functions contemplated by the law, is responsible for relations with the The Executive Committee of Banco BPI’s Board of Directors is various supervisory authorities, namely, the Bank of Portugal, the executive body responsible for the management of the CMVM (Securities Market Commission)1, Instituto de Seguros de Group’s business operations. Its most important functions Portugal (Insurance Institute of Portugal) and the Direcção Geral de include the allocation of capital, evaluating the profitability of Impostos e Inspecção de Finanças (Tax Department). Banco BPI’s the main business areas, financial risk management, deciding on Secretary also has to prepare the minutes of Board of Directors and and monitoring credit risks, making decisions concerning Executive Committee meetings, and then circulating these amongst investment or disinvestment in equity interests and defining all the members, while ensuring that supporting documents are human resources policy. made available at the Management Board meetings.
In order to ensure that all of the BPI Group’s risk areas are Banco BPI’s statutes are available on the Investor Relations monitored at close quarters, the Management Board set up an website located at the address www.ir.bpi.pt.
Banco BPI
Shareholders' General Meeting Remuneration Audit Committee Board
Audit and Internal Banco BPI's Company Control Committee Board of Directors Secretary
Banco BPI's Executive Committee
Executive Committee for Investment Banking
1) In liaison with the representative for relations with the Securities Market.
Annexes | The BPI Group’s Corporate Governance Report 235 3.2. GENERAL MEETING Composition, mode of participation and attributions Functioning rules Banco BPI’s General Meeting (GM) is the governing body where Pursuant to the law, the Annual General Meeting must meet shareholders entitled to vote – that is, all those owning at least before the end of May. one thousand Banco BPI shares – deliberate and vote on matters of vital importance in the life of the company. The Committee Chairman must convene an extraordinary General Meeting whenever this is requested by the Board of Directors, by the Audit Board, by shareholders owning shares corresponding to Principal powers of the General Meeting: at least 5% of the share capital or in other cases contemplated Election of members of the Board of Directors, the Audit in the law. Board, the Remuneration Committee and the General Meeting Committee; The General Meeting can deliberate at its first convocation Consideration of the Board of Directors' annual report, irrespective of the number of shareholders present or discussion and voting on the consolidated and individual represented, with the exception of motions relating to alterations accounts, as well as on the Audit Board's opinion; to the Bank’s statutes or merger and demerger operations or the Review of the strategic orientation and policies adopted; company’s dissolution, amongst other special situations Deliberation about the appropriation of the annual results, envisaged in the law. For these cases it is necessary that capital increases and the issue of bonds convertible into shareholders owning shares corresponding to at least one third of shares or with the right to subscribe for shares; the company’s capital must be present or represented. At the Deliberation about changes to the statutes. second convocation, the Meeting can deliberate irrespective of the number of shareholders present or represented and the capital represented by them.
Shareholders owning less than one thousand shares can group At the last three Meetings held on 3 April 2002, 8 November together so as to attain this number and thus acquire the right to 2002 and 10 April 2003, shareholders owning shares vote. In terms of the Company's statutes, the votes cast by one corresponding to 57.2%, 60.4% and 59.3% of the voting rights, single shareholder, whether in his own name or as the respectively, were present or represented. representative of another or others, that exceed twelve and a half per cent of the company's share capital, shall not be taken into The Shareholder or Shareholders owing shares corresponding to account. at least 5% of the share capital can request that certain matters be included in the order of business of a General Meeting Shareholders have three ways to participate at GM's: personal already convened or to be convened. attendance, representation (by other shareholders or third parties), postal voting and, for the first time at the Annual During the course of General Meetings, any shareholder can General Meeting to be held on 20 April 2004, shareholders may request that information be supplied so that he can form a cast their vote by electronic means. substantiated opinion about the matters being deliberated. Notwithstanding the faculty expressed in the previous paragraph, Composition of the General Meeting Committee the motions presented to the Shareholders’ meeting have as rule been at the initiative of the Board of Directors. Chairman Rui Manuel Chancerelle de Machete Deputy-Chairman Vasco Manuel Airão Marques Results of the Shareholders’ Meetings since 2000 Secretaries Galucho – Indústrias Metalomecânicas, S.A. The motions presented in General Meeting have consistently (represented by Vitalina Justino Antunes) been approved by all or almost all of the shareholders present or Produtos Sarcol, Lda. (represented by Estela M. Barbot) represented thereat as can be seen from the table below:
236 Banco BPI | Annual Report 2003 Motions (in general terms) presented at the Shareholders’ Meetings held in the last 4 years and the percentage of votes in their favour
29 Mar. 00 19 Sep. 00 29 Mar. 01 26 Jun. 01 03 Apr. 02 08 Nov. 02 10 Apr. 03
Report and Accounts 99.99% - 99.99% - 99.84% - 99.986%
Appropriation of Results 99.99% - 99.99% - 99.83% - 100.000%
General appraisal of management and supervision1 99.99% - 99.98% - 99.84% - 99.546%
Acquisition and disposal of treasury stock - 99.988% - - 99.84% - 99.998%
Three-yearly election of governing bodies ----99.84%2 --
Alteration of the statutes ------100.000%
Corporate reorganisation - - - 100.00% - 100.00%3 -
Alteration in the composition of the Board of Directors - - - 99.99% - - 99.998%
Capital increase - 99.988%4 --99.84% - - 1) Proposed vote of confidence and praise to the members of the Board of Directors and the Audit Board presented by a Shareholder. 2) Proposed by a Shareholder. 3) At this Meeting, 4 motions were voted on, all of which relating to the corporate reorganisation concluded at the end of 2002. 4) Associated to this motion, another was also voted on relating to the limitation of shareholders’ right of preference, which was approved by the same percentage of votes.
The last Extraordinary Meeting was held on 8 November 2002, corresponding amendment to article 4 of the demerged for the purpose of deliberating about the motions presented company’s statutes;
relating to the: Proposed merger by incorporation of Banco BPI into BPI SGPS and the consequent amendment to articles 1, 3 and 8 Proposed merger by incorporation of BPI Ventures and of BPI SGPS’s memorandum and articles of association for Dixit – Investimentos Estratégicos into BPI SGPS; the purpose of allowing this company to issue covered Proposed demerger of Banco Português de Investimento, in warrants;
the form of a merger-demerger, involving the transfer of part Proposed merger by incorporation of BPI Factor, BPI Leasing of the respective net assets to BPI SGPS. In accordance with and Estratégia SGPS into BPI SGPS. the relevant project, this demerger also entailed a reduction in Banco Português de Investimento’s share capital from the existing 175 180 000 to 20 000 000 euro, and the These motions were approved unanimously.
Annual General Meeting in 2003 Banco BPI’s Shareholders’ General Meeting met once in 2003, on 10 April. It was attended by Shareholders or their representatives owning shares corresponding to 59.3% of the voting rights, with Shareholders having deliberated and approved the following motions:
Percentage of votes
In favour Abstentions Against
Banco BPI individual and consolidated annual report and accounts for the financial year ended December 31, 2002. 99.986% 0.014% -
Appropriation of net income for 2002, including the payment of a 8 cents dividend per share to be attributed to each of the 760 000 000 shares in issue at 31 December 2002. 100.000% - -
Vote of confidence and praise to the Board of Directors and Audit Board, extended each and every member of the governing bodies, for the manner in which they carried out their respective mandates during 2002. 99.546% 0.446% 0.009%
Amendments to Articles 2, 7, 8, 11, 14, 16, 17 and 18 of the Company’s Articles of Association. 100.000% - -
Acquisition and disposal of own shares. 99.998% - 0.002%
Ratify the co-optation made to fill a vacancy on the Board of Directors. 99.998% 0.002% -
Annexes | The BPI Group’s Corporate Governance Report 237 BPI adopts the policy of publicly announcing at the conclusion of 2. To resolve on the proposed appropriation of net income for the General Meeting, the results of the Shareholders’ 2003; deliberations via the announcement publicised on the CMVM’s 3. To review the Company’s management and supervision; website (www.cmvm.pt), and sent to the general and specialist 4. To resolve the fulfilment of a vacancy in the Board of Directors; media bodies and through BPI’s Investor Relations website 5. To resolve on the proposed amendments to Article 12 of the (www.ir.bpi.pt). Company’s Articles of Association; 6. To resolve on the acquisition and disposal of own shares. Annual General Meeting – 20 April 2004 The next Annual General Meeting will be held on 20 April, at BPI is permanently concerned with encouraging Shareholder 11:00, at the Fundação de Serralves in the city of Oporto. The participation in the company’s affairs, in particular, at General Board of Directors will propose to the Shareholders the Meetings. To this end, it actively promotes the exercise of voting deliberation and vote of the following motions: rights – in person, by proxy or by postal or electronic mail, making available to Shareholders all the information and means 1. To receive and, if deemed fit, adopt Banco BPI’ individual and needed to participate at these meetings, well beyond what is consolidated annual report and accounts for the financial year required by law. All the information is provided to Shareholders ended December 31, 2003; simultaneously in Portuguese and English.
Preparatory information for the Shareholders’ General Meeting of 20 April 2004 and available information media
Communication channels
Made available by BPI Other channels Date available on BPI Information Postal mail CMVM In person1 Internet E-mail channels phone line about Website Media (www.ir.bpi.pt) ([email protected]) the SGM At BPI’s At shareholder’s 2 (www.cmvm.pt) (226 073 333) initiative request Elements required by law or regulations3
4 Meeting notice 19 Mar. 04
Board of Directors’ Proposals: 4 Alteration to the Statutes 19 Mar. 04 4 Other proposals 5 Apr. 04 Report and accounts5 for the 2003 5 Apr. 04 financial year
Other management and supervisory positions exercised in other companies 5 Apr. 04 by members of governing bodies
Name, qualifications and professional experience of a new member to propose 5 Apr. 04 to the Board of Directors
Additional elements made available by BPI
4 Drafts of proxy vote forms 30 Mar. 04
Request for the issue of a registration and 4 30 Mar. 04 mobilisation declaration
Ballot papers for the exercise of postal 4 30 Mar. 04 voting
Drafts forms for the exercise of voting by 4 30 Mar. 04 means electronic
Clarification of matters 19 Mar. 04
Banco BPI’s Statutes and Regulations 19 Mar. 04
Results of voting on the proposals 20 Apr. 04
1) At Banco BPI’s head office (Investor Relations Division, Rua Tenente Valadim, n.º 284, 3.º andar, Porto) and in Lisbon, at Public Relations Division, at Largo Jean Monnet, n.º 1, 1.º andar. 2) Postal address: Shareholders’ General Meeting – April 2004, Departamento de Títulos - Área de Fundos e Serviços, Rua Tenente Valadim, 284, 4100-476 Porto. 3) Companies Code (article 289) and CMVM Regulations (no. 11/2003). 4) Sent to Shareholders entitled to 5 or more voting rights. 5) Directors’ Report, individual and consolidated accounts, legal certification of accounts and opinion of the Audit Board.
238 Banco BPI | Annual Report 2003 3.3. BOARD OF DIRECTORS Responsibilities of the Board of Directors Specific responsibilities of the Chairman of the Board of Banco BPI’s Board of Directors is the governing body charged Directors with pursuing the company’s general interests, through the The Chairman of the Board of Directors is responsible for practice of all the acts necessary or appropriate for carrying out coordinating the Board’s activity, chairing the respective the activities falling under the company’s objects. The Board of meetings and overseeing the execution of its deliberations. It Directors has delegated the company’s day-to-day management is also the Chairman’s duty to act as the institution’s front-line to an Executive Committee within the limits defined in the representative before the public powers and other authorities. respective regulations.
The Board of Directors’ principal responsibilities
appointing members to the Executive Committee and proposing to the General Meeting any alterations to the systematically monitoring its activity; memorandum and articles of association, share capital
approving the strategic plan, as well as the BPI Group’s annual increases and bond issues which fall outside its jurisdiction operating plan and budget, periodically monitoring its execution; (bonds convertible into shares and bonds with the right to subscribe for shares); approving and monitoring risk exposures in excess of 15% of shareholders’ equity; decide on the issue of bonds when this falls within its authority; annually evaluating the Bank’s internal rating system, applied to all the companies with credit risk and whose turnover approve the code of conduct of the companies controlled by exceed EUR 1.25 million; the Group.
monitoring the BPI Group’s principal financial holdings; representing the company in and out of court, as plaintiff and defendant, to institute and contest any legal or making decisions regarding strategic investments and arbitration proceedings, to confess, withdraw or reach partnerships; agreement on any actions; monitoring the evolution of the liabilities and assets of the to acquire, sell or encumber any assets or rights; Group’s staff pension funds; to appoint authorised signatories for the practice of specific preparing the annual report and accounts and proposals for acts, defining the extension of their respective mandates. the appropriation of net profit for submission to the General Meeting;
Annexes | The BPI Group’s Corporate Governance Report 239 Structure Banco BPI’s Board of Directors is presently composed of 19 members, seven of whom make up the Executive Committee.
Structure of Banco BPI’s Board of Directors
Board of Directors Audit and Remunerations Internal Committee Executive Non-executive directors Committee Control Non-Independent Independent Committee
Chairman
Artur Santos Silva Chairman Deputy-Chairmen
3 Carlos da Câmara Pestana Chairman
Fernando Ulrich Deputy-Chairman
Rui Octávio Matos de Carvalho Chairman Members Alfredo Rezende de Almeida 4 António Domingues António Farinha Morais Armando Leite de Pinho 5 Fernando Ramirez1 Isidro Fainé Casas João Sanguinetti Talone José Pena do Amaral Klaus Dührkop Manuel de Oliveira Violas Manuel Ferreira da Silva Maria Celeste Hagatong Diethart Breipohl2 Roberto Egydeo Setúbal Tomaz Jervell 1) Representing Caixa Holding, S.A. 2) Representing RAS International, N.V. 3) Representing IPI – Itaúsa Portugal, SGPS, S.A. 4) Representing Cotesi – Companhia de Têxteis Sintéticos, S.A. 5) Representing Arsopi – Indústria Metalúrgica Arlindo Soares de Pinho, S.A.
Members of the Board of Directors are elected for three-year periods, with re-election always being permitted.
Independence of Members’ of the Board of Directors
The Board is composed of nineteen members. In terms of the The director Diethart Breiphol exercises management functions criteria laid down in CMVM Regulation 11 / 2003, five directors at Crédit Lyonnais and Banco Popular Español. of Banco BPI are classified as «non independents» by virtue of the fact that they exercise management functions at companies Additionally, it should be pointed out that the non-executive which can be considered to be BPI competitors; namely: director Klaus Dürkop represents the shareholder Allianz which owns 8.8% of BPI’s capital at 31 December 2003; the non-
The directors Carlos da Câmara Pestana and Roberto Egydeo -executive director Armando Leite de Pinho and persons and Setúbal exercise management functions at Itaú Group entities with whom he is related own 2.9% of BPI's capital; the companies; non-executive director Manuel de Oliveira Violas is Chairman of the Board of Directors of Violas SGPS, S.A. which owns a stake
The directors Isidro Fainé Casas and Fernando Ramirez of 2.9% in BPI’s capital and the non-executive director Tomaz exercise management functions at “La Caixa” Group Jervell is Chairman of AutoSueco, Lda’s Management Board, a companies; company which controls 1.6% of BPI’s share capital.
240 Banco BPI | Annual Report 2003 Functioning rules The Board of Directors can only pass resolutions when the Conflicts of interest majority of its members are present or represented. Resolutions can only be passed by an absolute majority of votes, with the Article 9 of the Board of Directors Regulations Chairman having the casting vote. Any member of the Board of 1. The members of the Board of Directors must disclose any Directors can be represented by another member of the Board of interest, direct or indirect, which they, any member of their Directors, but none may represent at any meeting more than one families or entities with which they have professional ties, member. may have in a company in respect of which the possibility is being considered of acquiring a participating interest, or where the BPI Group’s Banks or companies are considering Information about non-executive members granting a loan or provide any service. With the object of keeping the non-executive directors 2. In the circumstances referred in the preceding paragraph, permanently abreast of the Group's affairs, they are sent monthly they must describe the nature and extent of such any information concerning the Group's consolidated economic and interest and, in the case where this is substantial, they must financial situation, as well as the performance of the principal refrain from taking part in the discussion and/or vote of any business units, including the situation regarding Banco BPI’s proposal that refers to the said operation. pension fund. This information gives an account of the most important changes that took place and compares,whenever possible, monthly and accumulated trends with budgeted and Portuguese law1 provides that the directors, as well as the previous-year figures. In parallel, the non-executive directors are members of the Audit Board, are jointly liable to the company regularly informed of the main decisions taken by the Executive and to the company’s creditors2 for culpable non-compliance Committee by way of a document prepared by the Company with legal requirements and statutory duties. Secretary, who attends and prepares the minutes of all the meetings of the Executive Committee. The members of the Board of Directors owned in their own names at 31 December 2003, 0.5% of the share capital and Regulations and codes of conduct represented shareholders or exercised management functions at It is the Board of Directors’ responsibility to regulate its internal shareholder companies which, at 31 December 2003, held functioning through the drafting and approval of regulations. The shares corresponding to 48.3% of Banco BPI’s capital. Board of Directors’ and the Executive Committee’s regulations were last revised on 3 December 2003 and are available for Details of the other positions occupied by members of Banco consultation by the shareholders either at the company’s head BPI's Board of Directors at BPI Group or other companies are office or on the website www.ir.bpi.pt. presented in the appendix at the end of this report.
All the members of the Board of Directors are bound by a strict duty of confidentiality concerning matters discussed at Board of Directors’ meetings and at the meetings, if applicable, of the Remuneration Committee and of the Audit and Internal Control Committee.
The members of the Board of Directors are similarly bound by rigorous duties of information and action with the object of ensuring that, in the performance of their functions, they are not put in a situation which could indicate the existence or possible existence of conflicts of interests.
1) Companies Code – Chapter VII: “Civil responsibility for the constitution, management and supervision of the company”. 2) When the company’s net assets are inadequate to meet the aforementioned debts.
Annexes | The BPI Group’s Corporate Governance Report 241 Exercise of the Board’s functions in 2003 The Board of Directors met seven times in 2003. At its meetings shareholders. During the 2003 financial year and at the of 29 January and 3 March 2004, the Board of Directors meetings of 29 January and 3 March 2004, Banco BPI’s Board analysed and deliberated about matters relating to 2003, in of Directors deliberated and approved amongst others the particular the approval of the year’s report and accounts and the following issues: proposed distribution of net profit to be presented to the
Main deliberations of the Board of Directions
Responsibility for defining the Group’s general policies 29 Jan. 2004 Reflection concerning the BPI Group’s strategic options over the medium term Responsibility for approving plans and budgets 24 Apr. 2003 Approval of the alteration to the BPI Group’s Budget for 2003 3 Dec. 2003 Approval of the BPI Group’s Plan and Budget for 2004 Responsibility for preparing the accounts and proposing the appropriation of net profit 27 Feb. 2003 Approval of the draft Report and Accounts and the Proposed Appropriation of Net Profit relating to 2002 and 2003, 3 Mar. 2004 respectively, for presentation to the Shareholders’ General Meeting Power to issue of bonds 24 Apr. 2003 Renewal / revision of the “Euro Medium Term Note Programme” (EMTN Programme) and increasing of the respective overall amount Initiatives for the presentation of proposals to the Shareholders’ General Meeting 27 Feb. 2003 Approval of the proposals for the convening of the Shareholders’ Ordinary General Meetings held on 10 April 2003 and 3 Mar. 2004 to be held on 20 April 2004, respectively, as well as the proposals to be tabled by the Board of Directors at those Meetings Legal powers 11 Sep. 2003 Approval of the proposed merger, by incorporation, of Crediuniverso – Serviços de Marketing, S.A. into Banco BPI, S.A. Internal functioning rules 3 Dec. 2003 Approval of the appointment of Deputy-Chairman Fernando Ulrich to the post of Chairman of the Executive Committee of the Board of Directors with effect from the holding of the Shareholders’ General Meeting convened for 20 April 2004 24 Apr. 2003 Approval of the introduction of changes to the Board of Directors’, Executive Committee of the Board of Directors’ 3 Dec. 2003 and the Audit and Internal Control Committee’s Regulations Responsibility for pursuing the company’s general interests and undertaking the management of its business affairs 3 Feb. 2003 Consideration of the consolidated accounts relating to 2002 and 2003, respectively, and discussion about their 29 Jan. 2004 public release 30 Jul. 2003 Approval of the consolidated accounts for the first half of 2003 and discussion about their public release 24 Apr. 2003 Consideration of consolidated accounts for the first and third quarters of 2003, respectively, and discussion about 23 Oct. 2003 their public release 2003: 3 Feb., 27 Feb., 24 Apr., Analysis of the behaviour of Banco BPI shares on the stock exchange 30 Jul., 23 Oct. e 3 Dec. 2004: 27 Jan. e 3 Mar. 2003: 27 Feb., 30 Jul. e Analysis of individual exposures to credit risks in excess of 15% of BPI’s consolidated shareholders’ equity and 23 Oct. analysis, on 23 October 2003, of the results of the application of the risk evaluation systems in the areas of corporate 2004: 3 Mar. loans and in loans to individuals (especially mortgage loans) and to small businesses 2003: 24 Apr., 30 Jul., 23 Oct. Analysis of retirement and survivors’ pension liabilities and the respective cover by the Pension Fund and the return earned e 3 Dec. 2004: 29 Jan. e 3 Mar. 30 Jul., 23 Oct. e 3 Dec. 2003 Analysis of the performance of the principal investments which comprise BPI’s investment portfolio and approval on 30 July 2003, of the sale of the shareholding in Banc Post and the acquisition of 50% of Crediuniverso’s capital 24 Apr. 2003 Analysis of the programme involving the reduction in the Group’s workforce 27 Feb. 2003 Consideration of the criteria for the application of the share incentive and options scheme (RVA – Programa de Remuneração 3 Dec. 2003 Variável em Acções) for the performance of the Executive Committee Members of the Board of Directors and other Employees 3 Mar. 2004 during 2002 and 2003 and approval on 3 December 2003 and on 3 March 2004, of the alterations to the programme 24 Apr., 30 Jul. e 3 Dec. 2003 Analysis of the state of the Portuguese economy and its prospects 30 Jul. 2003 Approval of the guarantee given by Banco BPI for the issue by BPI Capital Finance Ltd (or another subsidiary to be constituted for this purpose) of up to two hundred and fifty million euro in non-voting preference shares 30 Jul., 23 Oct. e 3 Dec. 2003 The Board of Directors was informed by the Chairman of the Audit and Internal Control Committee about the activity carried out by this body 23 Oct. 2003 Review of BPI’s commercial position in the Portuguese financial system by reference to a number of characteristics of perception by the markets, own attributes and products 23 Oct. 2003 Review of the quality of services provided by Banco BPI and by its branches (measured on the basis of the Service Quality Index
242 Banco BPI | Annual Report 2003 ANNOUNCEMENT OF A CHANGE IN THE COMPOSITION OF BANCO BPI’S BOARD OF DIRECTORS
Eng. João Talone, a non-executive member of BPI’s Board of Directors, has decided to renounce his mandate which would have terminated at the end of 2004, thereby ending his professional career at the age of 80. His decision becomes effective at the next General Meeting scheduled to be held on 20 April.
Eng. João Talone obtained his degree in mine engineering from the Instituto Superior Técnico and concluded his studies by obtaining a masters degree at the University of Lovaina in 1948, with distinction. He then embarked on his professional career as Technical Manager of Companhia União Fabril Portuense (CUFP), the company which after its nationalisation gave origin to Unicer. He was the principle person responsible for CUFP’s considerable growth, having served as Director, Managing Director and then Chairman of the Board of Directors. As CUFP’s representative, he held the office of Director of CUCA, Angola’s pioneer and leading brewery. From 1972 until its nationalisation in 1975, he exercised successively the functions of executive Director of Banco Português do Atlântico, where he set up the area dedicated to the promotion and monitoring of industrial investments. He served on the Brewing Sector’s Restructuring Commission from 1975 to 1976 and was a Director of the Artois Group (Belgium), one of Europe’s leading brewing companies. After Unicer’s privatisation, he was appointed Deputy-Chairman of its Board of Directors, representing BPI. He was also a member of the United States Brewers Academy.
Eng. João Talone has participated in the BPI project since its inception, having been a promoter, founder and member of SPI – Sociedade Portuguesa de Investimentos’s Management Board (the institution which subsequently gave origin to the Bank). He sat on its General Board and on its Special Committee until this body’s transformation into the Board of Directors, of which he has always been a member.
BPI’s Board of Directors and principal shareholders express their sincerest gratitude to Eng. João Talone for his invaluable contribution to the Group’s creation, affirmation and success.
The name of Dr. Pedro Barreto will be proposed to the General Meeting to occupy the vacant position on the Board of Directors. If elected by the General Meeting, Dr. Pedro Barreto will be appointed by the Board of Directors to its Executive Committee. Dr. Pedro Barreto, who is 38 years of age, holds a Business Management degree from the Lisbon Catholic University and attended the Stanford University (California) Executive Training Programme. He joined BPI in October 1988 and since November 1998 has held the position of Senior Manager of Individuals’ Marketing. In August 2000 he was appointed a member of Commercial Banking’s Executive Committee, having played an important role in the Bank’s modernisation and growth.
Oporto, 5 March 2004
Banco BPI’s Board of Directors
Annexes | The BPI Group’s Corporate Governance Report 243 3.4. EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS Responsibilities of the Executive Committee The Executive Committee of Banco BPI’s Board of Directors The Executive Committee is barred from all management acts (Executive Committee) is the body responsible for the overall which are not envisaged on the list included in its regulations. management of the Group’s business activity. All the members of the Executive Committee play an active role in the day-to-day Responsibilities of the Executive Committee’s Chairman management of the Group’s business, and are responsible for The Chairman of the Executive Committee is responsible for one or more specific business areas in accordance with their coordinating its activities, to convene and chair the Committee’s profile and their individual specialist areas. Without prejudice to meetings, overseeing the execution of its deliberations. The the greater or lesser focus of one or other member in a particular responsibilities of the Chairman of the Board of Directors’ area, the decision-making process in matters relating to the Executive Committee are perfectly delimited through the Group’s strategic direction is done on a collective basis. existence of two autonomous regulations which encapsulate the responsibilities of each one. Although the essence of these Wide powers are also vested in the Executive Committee of regulations is included in this Report, the full version of both Banco BPI’s Board of Directors, necessary or appropriate for the can be consulted at the website www.ir.bpi.pt or on request to exercise of banking activity. the Investor Relations Division ([email protected]).
Composition of the Executive Committee Principal responsibilities of the Executive Committee The Executive Committee is composed of seven independent Concession of loans and guarantees, provided that this does executive directors. not result in na involvement in one only entity or Group of more than 15% of Banco BPI’s consolidated shareholders’ funds; Chairman Artur Santos Silva
Realisation of currency operations; Deputy-Chairman Fernando Ulrich Members António Domingues Realisation of liability-side operations, including the issue of José Pena do Amaral cash bonds and financial instruments of a similar nature; Maria Celeste Hagatong Investing or disinvesting in other companies, with the Manuel Ferreira da Silva exception of the participating interest in Banks and Insurance António Farinha Morais Companies;
Acquisition, sale or encumbering of any other securities, properties, movable goods and services; In total, the members of the Executive Committee owned 0.2% Admission of Employees, defining their remuneration and the of the company’s capital at 31 December 2003. exercise of disciplinary power;
Opening and closure of branches or agencies;
Nomination of the Bank’s representatives at the General Meetings of the companies in which it has equity interests;
Nomination of the persons to serve on the governing bodies to which the Company has been elected;
Issue of binding instructions to the companies over which there is full control;
Representation of the Bank in and out of court;
Constitution of authorised signatories for the performance of specified acts.
244 Banco BPI | Annual Report 2003 Experience and professional qualifications of members of Banco BPI’s Executive Committee of the Board of Directors
Artur Santos Silva (Chairman)
Date of birth 22 May 1941 (62 years) Academic qualifications 1985: Stanford Executive Program, Stanford University 1963: Law graduate from the Universidade de Coimbra Principal positions held at Chairman of Banco BPI’s Board of Directors the BPI Group Chairman of Banco BPI’s Executive Committee Chairman of the Board of Directors of Banco Português de Investimento Chairman of the Board of Directors of Banco de Fomento Angola Joined the BPI Group 1981: Chairman of SPI – Sociedade Portuguesa de Investimentos Professional experience 1977-78: Vice-Governor of the Bank of Portugal 1975-76: Secretary of State for the Treasury 1968-75: Director of Banco Português do Atlântico 1963-67: Lecturer at the Faculty of Law at the Universidade de Coimbra, in the subjects of Public Finance and Political Economy
Fernando Ulrich (Deputy-Chairman)
Date of birth 26 April 1952 (51 years) Academic qualifications 1969-74: Attended Business Management Course of the Instituto Superior de Economia de Lisboa Principal positions held at Deputy-Chairman of Banco BPI’s Board of Directors the BPI Group Deputy-Chairman of the Executive Committee of Banco BPI’s Board of Directors Deputy-Chairman of Banco Português de Investimento Deputy-Chairman of Banco de Fomento Angola Principal areas of responsibility Overall responsibility for retail banking, Accounting and Planning, Real Estate Financing and Asset Management at the BPI Group Joined the BPI Group 1983: Assistant Director of SPI – Sociedade Portuguesa de Investimentos Professional experience 1981-83: Chief of the Office of the Minister of Finance and Planning 1979-80: Officer in the Secretariat for External Economic Cooperation of the Foreign Affairs Ministry (Relations with the EFTA, OECD and GATT) 1975-79: Member of the Portuguese Delegation at the OECD(Paris), responsible for economic and financial matters 1973-74: In charge of the Financial Markets section of the weekly newspaper “Expresso”
António Domingues (Member)
Date of birth 30 December 1956 (47 years) Academic qualifications 1979: Economics graduate from the Instituto Superior de Economia (ISE); Prof. Beirão da Veiga prize for the highest classification in the degree course Principal positions held at Member of Banco BPI’s Board of Directors the BPI Group Member of Banco BPI’s Executive Committee Member of the Board of Directors of Banco de Fomento Angola Chairman of the Executive Committee of Banco de Fomento Angola Principal areas of responsibility Financial Division, International Division, Information Systems, Cards, Operations and Procurement, at the BPI Group Security and Premises and Fixed Assets Joined the BPI Group 1989: Director responsible for the Financial Division of Banco Português de Investimento Professional experience 1988-89: Assistant Director-Geral of the branch in France of Banco Português do Atlântico 1986-88: Technical Advisor to the Foreign Department of the Bank of Portugal 1982-85: Director of the Foreign Department of the Instituto Emissor de Macau 1981: Economist at IAPMEI Until 1981: Economist at the Office of Studies and Planning of the Ministry of Industry and Energy
Annexes | The BPI Group’s Corporate Governance Report 245 José Pena do Amaral (Member)
Date of birth 29 November 1955 (48 years) Academic qualifications 1978: Economics graduate from the Instituto Superior de Ciências do Trabalho e da Empresa Principal positions held at Member of Banco BPI’s Board of Directors the BPI Group Member of Banco BPI’s Executive Committee Principal areas of responsibility Communication, Brand, Quality, Training, Insurance, Protocol Banking, Automatic Banking, at the BPI Group Motor Car Finance and Personal Loans Joined the BPI Group 1986: Advisor to the Management of Banco Português de Investimento Professional experience 1986-96: Consultant of Casa Civil of the President of the Republic for European Affairs 1983-85: Head of the Office of the Minister of Finance and Planning; Permanent member of the Portuguese Ministerial delegation in the negotiations for Portugal’s accession to the European Economic Community 1982-83: Member of the Office of the consultants Jalles & Vasconcelos Porto; Correspondent of the newspaper “Expresso”, Rádio Televisão Portuguesa and “Deutsche Welle” in Brussels 1980-82: Head of the Delegation of “ANOP” in Brussels 1979-80: Editor of the Economic Supplement of the “Diário de Notícias” 1975-80: Journalist for the “Diário de Notícias”
Maria Celeste Hagatong (Member)
Date of birth 2 July 1952 (52 years) Academic qualifications 1977: Finance graduate from the Instituto Superior de Economia da Universidade Técnica de Lisboa Principal positions held at Member of Banco BPI’s Board of Directors the BPI Group Member of Banco BPI’s Executive Committee Principal areas of responsibility Corporate Banking, Wholesale Banking, Corporate Marketing, Institutional Banking and Project Finance at the BPI Group Joined the BPI Group 1985: Project Manager at BPI’s Corporate Department Professional experience 1978-85: Manager of Financial Services at the Directorate-General of the Treasury of the Ministry of Finance 1984-85: Member of the Board of Directors of the Fonds de Rétablissement du Conseil de L'Europe 1974-77: Responsible for the Department of Local Finance of the Ministry for Internal Administration
Manuel Ferreira da Silva (Member)
Date of birth 25 February 1957 (47 years) Academic qualifications 1982: MBA, post-graduate course in Business Management from the Universidade Nova de Lisboa in collaboration with the Wharton School (University of Pennsylvania) 1980: Economics degree from the Economics Faculty of the Universidade do Porto. Principal positions held at Member of Banco BPI’s Board of Directors the BPI Group Member of Banco BPI’s Executive Committee Chairman of the Executive Committee of the Board of Directors of Banco Português de Investimento Principal areas of responsibility Investment Banking, Private Equity, Investor Relations and Risk Analysis and Control at the BPI Group Joined the BPI Group 1983: Technical member of the Department of Financial Operations of SPI – Sociedade Portuguesa de Investimentos Professional experience 1980-89: Lecturer at the Economics Faculty of the Universidade do Porto 1981-83: Assistant Director of the Navy’s Centre of Operational Investigation
António Farinha Morais (Member)
Date of birth 2 August 1951 (52 years) Academic qualifications 1974: Finance graduate from the ISCEF Principal positions held at Member of Banco BPI’s Board of Directors the BPI Group Member of Banco BPI’s Executive Committee Principal areas of responsibility Individuals and Small Businesses Network, Individuals Loan Risks, Emigration at the BPI Group Joined the BPI Group 1996: Central Manager responsible for Banco BPI’s Individuals and Small Businesses Network Professional experience 1992-96: Director of Banco de Fomento e Exterior and of Banco Borges & Irmão 1992: Director of Companhia de Seguros Aliança 1989-91: Director of Banco Pinto & Sotto Mayor 1984-89: Director of the companies SEFIS and Eurofinanceira (BFE Group) 1981-89: Director of Financial Services and Capital Markets of Banco de Fomento e Exterior 1978-81: Technical analyst of investment projects at Banco de Fomento e Exterior 1975-82: Lecturer at the Instituto Superior de Ciências do trabalho e a Empresa and at the Instituto Superior de Contabilidade e Administração de Lisboa 1967-78: Administrative and financial manager for a group of 4 companies
246 Banco BPI | Annual Report 2003 Change in the Chairmanship of Banco BPI’s Executive Committee Banco BPI’s Board of Directors approved a resolution on 3 of Directors, with effect from the holding of the Shareholders’ December 2003 appointing the Deputy-Chairman Fernando Ulrich General Meeting convened for 20 April 2004. The following is a to the office of Chairman of the Executive Committee of the Board reproduction of the announcement made at the time.
(Important fact)
At its meeting held in Lisbon on 3 December 2003, Banco BPI’s Board of Directors unanimously approved the appointment of Deputy-Chairman Fernando Ulrich to the position of Chairman of the Board of Directors’ Executive Committee, with effect from the date of the next General Meeting which is expected to be held in April 2004.
Mr Fernando Ulrich’s appointment was proposed by the Chairman of the Board of Directors, Mr Artur Santos Silva, who will cease executive functions on the same date, after the approval of the 2003 accounts, that is, the year in which he turned sixty two years of age. In terms of article 26(3) of the Statutes, 62 is the age limit for the exercise of executive functions at the Bank. This age limit for the exercise of executive functions on the Board of Directors was fixed in 1998 following a proposal put forward by the Chairman of the Board of Directors, Artur Santos Silva.
The officers serving on BPI’s governing bodies are elected in General Meeting for terms of three years (renewable). The Board of Directors members appoint from amongst their number the members of the Executive Committee and its Chairman. The present mandate terminates in April 2005, with those currently in office being the Board Chairman, Artur Santos Silva, and the Deputy-Chairmen, Carlos da Câmara Pestana, Ruy de Carvalho and Fernando Ulrich, as well as the Board members.
The members of BPI’s Board of Directors expressed their heartfelt appreciation for the Artur Santos Silva’s remarkable achievements as leader and founder of BPI, the first private financial institution created in Portugal since 1974. They manifested their satisfaction with the fact that he will continue to serve as the Bank’s Board of Directors Chairman, as well as the Chairman of the Audit and Internal Control Committee.
The members of the Board of Directors congratulate themselves with the appointment of Fernando Ulrich as the Executive Committee’s Chairman, thereby underscoring his decisive role in the BPI Group’s growth since he joined in July 1983, and his excellent working relationship with the Board of Directors’ Chairman, Artur Santos Silva. This affinity is considered to be especially important for ensuring proper coordination between the Board of Directors and its Executive Committee in this new phase of the Bank’s evolution, when the two management bodies will be chaired for the first time by different persons.
Lisbon, 3 December 2003
The Board of Directors
Functioning rules The Executive Committee can only adopt resolutions when the who are members of the Executive Committee relinquish their majority of its members are present, with such decisions positions on the Committee once the accounts relating to the requiring an absolute majority of the votes. The Chairman has financial year in which they celebrate their sixty-second birthday the casting vote. Proxy voting is not permitted. The directors are approved. The Executive Committee met 51 times in 2003.
Annexes | The BPI Group’s Corporate Governance Report 247 Specialised Executive Committees 3.4.1. Executive Committee for Commercial Banking The Executive Committee meets at least once a month for the The Executive Committee for Commercial Banking is presided purpose of dealing with matters of general interest relating to over by the Deputy-Chairman of the Executive Committee of Banco BPI and its subsidiaries. It is involved on a weekly basis Banco BPI’s Board of Directors. It is the body responsible for with the specialised areas of the Group’s management, for which managing the technological infrastructure, the central support three specific committees were created: structures of the commercial networks and for the activity relating to following Customer segments: Individuals, Small
Executive Committee for Commercial Banking Businesses and Companies.
Executive Committee for Credit Risks
Executive Committee for Market Risks The Committee is composed of five Banco BPI executive directors – Fernando Ulrich, António Domingues, José Pena do
Banco BPI's Amaral, Maria Celeste Hagatong and António Farinha Morais – a Executive Committee non-executive director of the investment bank – Manuel Menezes – and two central managers from Banco BPI – Benjamim Pinho and Pedro Barreto – whose areas of responsibility are referred to Executive Committee Executive Committee Executive Committee for Credit Risks for Commercial Banking for Market Risks in the table below:
Principal areas of responsibility of Commercial Banking’s Executive Committee
Fernando Ulrich Overall responsibility for retail banking, Accounting and Planning, Property Financing and Asset Management Chairman António Domingues Financial area, International Division, Information Systems, Cards, Operations and Procurement, Security, Premises and Fixed Assets José Pena do Amaral Communication, Brand, Quality, Training, Insurance, Protocol Banking, Automated Banking, Motor Car Finance and Personal Credit Maria Celeste Hagatong Corporate Banking, Wholesale Banking, Corporate Marketing, Institutional Banking and Project Finance
António Farinha Morais Individuals and Small Businesses Network, Credit Risks – Individuals, Emigration
Manuel Menezes Audit and Inspection, Securities and Transfer, Organisation, Equipment Leasing, Factoring, Documentary Credits and Customer Resources Benjamim Pinho Credit Risks – Companies
Pedro Barreto Operational and Strategic Marketing and New Channels (Internet, Telephone Banking and Electronic Banking)
3.4.2. Executive Committee for Credit Risks The Executive Committee for Credit Risks is the body that takes Lacerda (Large Companies Northern Division), João Alvares the principal decisions relating to aspects referring to the Ribeiro (Medium-sized Companies Northern Division), João concession, monitoring and recovery of loans. This body includes Coutinho (Large Companies Southern Division) and Joaquim (besides members of Banco BPI’s Executive Committee) two Pinheiro (Medium-sized Companies Southern Division). Since directors of the investment bank – Francisco Costa and Maria do February 2004 the Central Manager João Ermida, responsible for Carmo Oliveira, responsible for the South and North Wholesale the Markets Division, has also formed part of this body. Banking areas, respectively – the central manager – Benjamim de Pinho – responsible for the Credit Risk Division, the central manager – Filipe Cartaxo – responsible for Institutional Banking, and the central managers of Corporate Banking – Maria Isabel
248 Banco BPI | Annual Report 2003 3.4.3. Executive Committee for Market Risks The Executive Committee for Market Risks is the body charged Group’s International Division. Since February 2004, the Central with analysing the conformity of the positions and mechanisms Manager João Ermida has also joined this body. associated with the evaluation of interest, currency and equities risks. This body comprises, besides members of Banco BPI’s The policy, procedures and allocation of powers amongst the Executive Committee, the director of the investment bank Rui Group’s various bodies and departments on matters relating to Martins dos Santos, responsible for the Risk Analysis and the control and management of the Group’s risks – credit risk, Control areas and the Department of Economic and Financial market risk, liquidity risk and operational risk – are described in Studies, and the central manager Isabel Castelo Branco, detail in a separate chapter of the directors’ report. responsible for the Financial Divisions of the Group’s two banks and the central manager José Manuel Toscano, head of the
Annexes | The BPI Group’s Corporate Governance Report 249 3.5. BOARD OF DIRECTORS’ AUDIT AND INTERNAL CONTROL COMMITTEE The Audit and Internal Control Committee, created within the Responsibilities of the Audit and Internal Control Committee ambit of the Board of Directors and set up within the ambit of The Audit and Internal Control Committee is responsible for: the Board of Directors, has been functioning since 1999 and comprises four non-executive directors. In terms of the Board of Overseeing the existence of a proper system of internal control Directors' regulations, the Audit and Internal Control Committee at the banks, insurance and asset management companies may only comprise members with non-executive functions. The controlled by the BPI Group, and the effective compliance with independence of this Committee’s members vis-à-vis the their objectives;
Executive Committee is aimed at ensuring proper compliance Choosing the external auditors; with the duties entrusted to it.
Supervising the activities of the internal and external auditors Composition of the Audit and Internal Control Committee of the BPI Group’s Banks.
Chairman Ruy Octávio Matos de Carvalho The Committee sets the following objectives with a view to Members Carlos da Câmara Pestana fulfilling the mission entrusted to it: Alfredo Rezende de Almeida Caixa Holding, S.A., Sociedad Unipersonal (Fernando Ramirez)
Principal objectives of the Audit and Internal Control Committee 1. Assess the Group’s efficiency in the use of its resources and 7. to prevent the BPI Group’s involvement in money laundering in the establishment of control mechanisms which protect it operations; against possible losses arising from the exercise of its 8. To analyse economic provisions relating to the loan portfolio, business activity, namely, credit, market, liquidity and specific provisions for participating interests and for the operating risks. securities portfolio; 2. To guarantee the integrity, reliability and up-to-date content 9. analysing loss incidents arising from Customer or Employee of the accounting and financial information which feeds the fraud; management information system; 10. To review exposures to credit risks of more than 5% but 3. To ensure the conformity of the operations and businesses less than 15% of Banco BPI’s consolidated shareholders’ conducted by the Group’s Banks with legal provisions and funds other requirements issued by the supervising authorities, as 11. To review defaulting loans in excess of 90 days where the well as with the BPI Group’s general regulations and credit risk exposure exceeds EUR 500 thousand policies; 12. To monitor closely unrealised losses on the securities and 4. To approve and monitor the execution of the external and participating interests portfolio internal audit programmes, namely, appraising the recommended changes to procedures advocated by the 13. To monitor the situation of the staff pension funds of the external auditors; Banks controlled by the BPI Group 5. To approve the fees payable to the external auditors for 14. To analyse Customers' complaints systematically reported audit services: in the reports prepared by the Quality Division 6. To consider the internal control reports to be sent annually to the Bank of Portugal by all the BPI Group banks and financial companies, and to collaborate in all the inspections conducted by the Bank of Portugal, CMVM, Insurance Institute of Portugal (ISP) and the Tax Department General Inspectorate.
250 Banco BPI | Annual Report 2003 The Committee’s activity in 2003 The Audit and Internal Control Committee monitored the work right, by the Chairman of the Executive Committee of the Board leading to the introduction of the IFRS and the changes of Directors, and by the BPI Group director responsible for the stemming from the Basle II accord. It also kept abreast of the internal control and audit of the BPI Group’s Banks, by senior main aspects addressed at the monitoring meetings held by the management members responsible for this area, as well as by rating agencies which evaluate Banco BPI. those whose presence was deemed necessary in view of the matters included in the meeting agenda. The BPI Group’s Banks’ internal and external auditors participated in the meetings of the Audit and Internal Control The Audit and Internal Committee met 4 times in 2003. Committee, which were also attended, but without any voting
Summary of activity of the Audit and Internal Control Committee in 2003
Assess the Group’s efficiency in the use of its resources and in the establishment of control mechanisms which protect it against possible losses arising from the exercise of its business activity (risk management) 17 June Analysis within the ambit, objectives and developments of a project which is aimed at streamlining the management of operating risk, as well as with a view to the progressive approximation to the rules contemplated in the Basle II Accord 19 November Take stock of the situation relating to the «Operating Risk» project and preparing the groundwork for a study of the impact, on the calculation of the Bank’s regulatory capital, of the methods proposed in the Basle II Accord for measuring operating risks. To ensure the conformity of the operations and businesses conducted by the Group’s Banks with legal provisions and other requirements issued by the supervising authorities, as well as with the BPI Group’s general regulations and policies 17 June Comparison of the conclusions of the Basle Committee’s survey covering international banking practice in the area of internal audit and banking supervision with the BPI Group’s practice. To guarantee the integrity, reliability and up-to-date content of the accounting and financial information which feeds the management information system To approve and monitor the execution of the external and internal audit programmes, namely, appraising the recommended changes to procedures advocated by the external auditors 19 March Analysis of the conclusions and suggestions put forward by Deloitte & Touche in the wake of their review of the existing procedures at the Securities, Transfers and Credit Division in the areas of Corporate Guarantees and Loans. 19 March Appraisal of the work carried out by the Audit and Inspection Division covering the Central Services, Foreign Department and Affiliated Companies in the 2nd half of 2002, and approval of the Audit Plan for the last four months of 2003 19 March Appraisal of the work carried out by the Audit and Commercial Inspection Division in the 2nd half of 2002 19 March Approval of the Plan for audit / review procedures to be effected by the External Auditors in 2003 17 June Analysis of the conclusions and suggestions put forward by Deloitte & Touche in the wake of their review of the existing procedures at the Human Resources Division covering the calculation of pension obligations, the control of the information sent to BPI Pensões and salaries and pensions processing. 17 June Analysis of the conclusions and suggestions put forward by Deloitte & Touche in the wake of their review of the method of classifying the operations managed by the Finance Division; discussion of aspects arising from the forthcoming introduction of the International Financial Reporting Standards (IFRS) 24 September Appraisal of the work carried out by the Audit and Inspection Division covering the Central, Foreign and Affiliated Companies Centres in the 1st half of 2003, and approval of the Audit Plan for the last four months of 2003 24 September Appraisal of the work carried out by the Audit and Commercial Inspection Division in the 1st half of 2003 24 September Analysis of the conclusions and suggestions put forward by Deloitte & Touche in the wake of their review of the existing procedures at the Car Finance Division and in the application of management of guarantees / deposits at the Securities, Transfers and Loans Division. 24 September Review of the internal control reports relating to the companies BPI Fundos and SOFINAC 19 November Appraisal of the work carried out by the Audit and Inspection Division covering the Central Services, Foreign Department and Affiliated Companies in the months of July, August, September and October 19 November Analysis of the conclusions and suggestions put forward by Deloitte & Touche in the wake of their review of the existing procedures at the Private Banking Department of Banco Português de Investimento 19 November Analysis of the conclusions and suggestions contained in a document issued by Deloitte & Touche relating to Banco BPI’s and Banco Português de Investimento’s tax matters To approve the fees payable to the external auditors for audit services 19 November Establishing the terms of the collaboration with Deloitte & Touche for 2004, including their fees To consider the internal control reports to be sent annually to the Bank of Portugal by all the BPI Group banks and financial companies, and to collaborate in all the inspections conducted by the Bank of Portugal, CMVM, ISP – Instituto de Seguros de Portugal and the DGCI – Diecção Geral de Contribuições e Impostos (inland revenue) 17 June Review of the Internal Control Reports relating to Banco BPI and Banco Português de Investimento to be sent to the Bank of Portugal 17 June Reading the letters received from the Bank of Portugal regarding the opinions of the supervisory bodies on the internal control system 24 September Review of the Internal Control Reports relating to the companies BPI Fundos and SOFINAC to be sent to the Bank of Portugal To analyse economic provisions relating to the loan portfolio, specific provisions for participating interests and for the securities portfolio 19 March Exchange of views concerning compliance with a Bank of Portugal circular which requires the preparation by the External Auditors, of a half-yearly report on the quantity of economic provisions relative to the risk implicit in the loan portfolio. 19 November Analysis of the reported submitted by the external auditors in compliance with the guidelines laid down by the Bank of Portugal regarding the quantification of the economic provisions relative to the risk implicit in Banco BPI’s loan portfolio as at 30 June
Annexes | The BPI Group’s Corporate Governance Report 251 Activity of the Audit and Internal Control Committee in 2003 (cont.)
Analisar as ocorrências geradoras de prejuízos resultantes de fraudes de Clientes ou Colaboradores 19 March Report listing occurrences detected by the Bank’s Audit and Inspection Division (DAISP and DAIC) in the 2nd half of 2002 which resulted in losses; corrective measures and disciplinary sanctions applied 24 September Report listing occurrences detected by the Bank’s Audit and Inspection Division (DAISP and DAIC) in the 1st half of 2003 which resulted in losses; corrective measures and disciplinary sanctions applied 19 November Report listing occurrences detected by the Bank’s Audit and Inspection Division (DAISP and DAIC) in the 3rd quarter of 2003 which resulted in losses; corrective measures and disciplinary sanctions applied 19 November Review of a document containing a list of the most common shortfalls and omissions detected in audit and inspection work and which are the loophole that most favour the practice of frauds and impede the identification of their perpetrators To review exposures to credit risks of more than 5% but less than 15% of Banco BPI’s consolidated shareholders’ funds 24 September Analysis of the Bank’s exposure to credit risks falling between EUR 5 and EUR 15 million, including an evaluation of the companies with “C” class ratings or in respect of which the amounts involved are very material To review defaulting loans in excess of 90 days where the credit risk exposure exceeds EUR 500 thousand 24 September Analysis of cases where Customers are in default for amounts of more than EUR 100 thousand and in respect of whom the Bank has an exposure of more than EUR 500 thousand To monitor closely unrealised losses on the securities and participating interests portfolio 24 September Analysis of the unrealised losses associated with investments (in the light of Bank of Portugal Notice 4 / 2002), the provisions set aside to cover these and the impact on own funds. To monitor the situation of the staff pension funds of the Banks controlled by the BPI Group 19 March Review of the returns presented by the Bank’s Pension Fund in 2002, as well as the composition of its assets portfolio 24 September Review of BPI Fundos’s activity, with special emphasis on the trend in profitability (by asset category) of the portfolios and in the signing-up of new clients
252 Banco BPI | Annual Report 2003 3.6. AUDIT BOARD Responsibilities of the Audit Board It is the Audit Board's function to supervise the Company's affairs and to verify strict compliance with the law and its Experience and professional qualifications of the statutes. Consequently, the Audit Board prepares an annual members of the Audit Board (individuals) report on its work and issues an opinion on the annual report and accounts, as well as on the proposed appropriation of net Jorge de Figueiredo Dias, 66 years of age. profit / loss, presented to the General Meeting by the Board of Chair Professor of Penal Law, Penal Process and Criminal Directors. Science at the Law Faculty of the Universidade de Coimbra. Was until 2003, President of this faculty’s Members of the Audit Board have proper technical qualifications Scientific Council, where he served as President of the – that is, in the areas of law, accountancy and financial Representatives Assembly, of the Management Council management – as well as professional experience that enable and the Pedagogical Council. He is an elected Member them to comply in an effective and stringent manner with the of the Universidade de Coimbra’s Senate representing the professors. He is Professor of the Law Faculties of responsibilities entrusted to them. It is important to note that in the Universidade Católica Portuguesa, the University of Portugal it is a legal requirement that one of the members in Macau, the Paris University I (Panthéon – Sorbonne) and office, and one of the alternate members, of the Audit Board of the Universidade Val Paraíso (Chile); professor in must be Portuguese statutory auditors («revisores oficiais de charge and President of the Management Council of the contas») or firms of such auditors («sociedades de revisores Institute of European Economic Penal Law (Law Faculty oficiais de contas»). of the Universidade de Coimbra); Member of the Management Council of the Fundação Luso-Americana Composition of the Audit Board para o Desenvolvimento; past President of the General Meeting of the Caixa Geral de Depósitos. Chairman Jorge de Figueiredo Dias
Member José Ferreira Amorim José Ferreira de Amorim, 78 years of age. Magalhães, Neves & Associados, SROC Chairman of the Board of Directors of SIMON – (Augusta Francisco) Sociedade Imobiliária do Norte, S.A. and RIAOVAR – Alternate Member António Dias & Associados, SROC Empreendimentos Turísticos e Imobiliários, S.A. (António Dias) Authorised signatory of SANOR – Sociedade Agrícola do Norte, Lda. From 1950 to 1987, he was a director- -shareholder of companies belonging to the Amorim The Audit Board met five times during 2003. Group.
Annexes | The BPI Group’s Corporate Governance Report 253 3.7. REMUNERATIONS COMMITTEE Responsibilities of the Remuneration Committee The Remuneration Committee's function is to fix the Presently, it is composed of the shareholders Itaúsa Portugal, remuneration of the members of Banco BPI's governing bodies, Cotesi – Companhia de Têxteis Sintéticos, S.A. and Arsopi – and to formulate the remuneration policy and the retirement Indústria Metalúrgicas Arlindo Soares de Pinho, S.A. regime to apply to members of Banco BPI's Executive Committee and to members of Banco Português de Investimento's Board of Chairman Itaúsa Portugal – Sociedade Gestora de Directors. Participações Sociais, S.A. Members Cotesi – Companhia de Têxteis Sintéticos, S.A. Composition of the Remuneration Committee Arsopi – Industrias Metalúrgicas Arlindo The Remuneration Committee is composed of three shareholders Soares de Pinho, S.A. elected for three-year terms by the General Meeting, and who in turn elect a Chairman (who has the casting vote).
Activity of the Remuneration Committee in 2003 On 28 January 2004, the Remuneration Committee revised – Variável em Acções) to the members of Banco BPI’s Executive to become effective in 2004 and until the termination of its Committee, as well as to the other members of Banco mandate – the monthly remuneration of the Members of Banco Português de Investimento’s Board of Directors, with the cost BPI’s Executive Committee, as well as that of the other of the options being fixed at 0.33 euro (2002) and 0.45 euro Members of Banco Português de Investimento’s Board of (2003), and the price of the shares at 2.14 euro (2002) and Directors, who should receive an increase equivalent to the 3.13 euro (2003) respectively. change applicable, in terms of the ACTV, to level 18. The Remuneration Committee was informed on 17 April 2003 The Remuneration Committee fixed on 17 April 2003 and on of the amount and conditions of the home loans granted to the 28 January 2004 the amount of the variable remuneration to members of Banco BPI’s Executive Committee. It decided that be paid to the members of Banco BPI’s Executive Committee, the home loan operations not falling within the ACTV as well as to the other members of Banco Português de (collective employment agreement) for the Banking Sector Investimento’s Board of Directors, in respect of the exercise of should have the same conditions as those applicable to Banco functions in 2002 and 2003 respectively. BPI Customers.
The Remuneration Committee deliberated on 17 April 2003 The Remuneration Committee exercised the functions attributed and on 28 January 2004 about the conditions of the share within the ambit of the regime governing the retirement of BPI incentive and options scheme (RVA – Programa de Group Directors, which regime was approved by the then Remuneração General Board at its meeting held on 25 July 1995.
No Director has the authority to fix his own remuneration. The principles, criteria and amounts involved in the fixing of the remuneration of the officers sitting on Banco BPI’s governing bodies are dealt with in more detail in chapter seven (“Remuneration”) of this report.
254 Banco BPI | Annual Report 2003 3.8. BANCO PORTUGUÊS DE INVESTIMENTO’S MANAGEMENT Banco Português de Investimento is the Group unit specialising Banco Português de Investimento's Board of Directors in investment banking, namely Corporate Finance, Equities and Directors Executive Non-executive
Private Banking. Artur Santos Silva Chairman
Fernando Ulrich Deputy-Chairman Banco Português de Investimento’s Management Board is made Manuel Ferreira da Silva up of 11 members – with its chairman and deputy-chairman Rui Lélis being the same as those on Banco BPI’s Executive Committee – José Carlos Agrellos 5 executive directors and 4 non-executive directors. The day-to- António Borges de Assunção -day business management is delegated to an Executive Rui Martins dos Santos Maria Celeste Hagatong Committee composed of 4 executive directors and three central Francisco Costa managers. This body is presided over by Manuel Ferreira da Maria do Carmo Oliveira Silva, member of the Executive Committee of Banco BPI’s Board Manuel Meneses of Directors.
The Board of Directors can only pass resolutions when the Banco Português de Investimento’s Executive Committee majority of its members are present or represented. Resolutions Areas of responsibility can only be passed by an absolute majority of votes, with the Manuel Ferreira da Silva Chairman Chairman having the casting vote. Any member of the Board of Rui Lélis Legal and Human Resources Directors can be represented by another member of the Board of José Carlos Agrellos Private Banking Directors, but none may represent at any meeting more than one António Borges de Assunção Corporate Finance member. The Board of Directors meets quarterly, while the Carlos Casqueiro Corporate Finance Executive Committee met 36 times in 2003. Henrique Cabral Menezes Equities Rui Lopes Ferreira Private Equity
As is the case at Banco BPI, all the members of the Board of Directors are bound by strict confidentiality rules concerning the 3.9. BPI GROUP’S CORPORATE GOVERNANCE MONITORING matters discussed at the Board’s meetings, as well as by a set of COMMITTEE internal rules. These are embodied in a code of conduct aimed In April 2004, Banco BPI’s Board of Directors will deliberate at safeguarding against conflict of interest or situations involving about the creation of a Committee empowered to evaluate the the abuse of privileged information. This issue is dealt with in BPI Group’s structure and governance. greater detail under point 11 – Ethics and Professional Conduct, of this report.
Annexes | The BPI Group’s Corporate Governance Report 255 4. The Group's functional organisation chart
Executive management, supervision and control Product units The composition and functions of the BPI Group’s management, The development of the banks’ commercial products and supervisory and control bodies are detailed in points 3.1. to 3.8. services is segregated by specialised Divisions (product units), of this report. part of which – property financing, motor vehicle, cards, asset management, leasing and factoring – simultaneously serving the BPI Group functions individuals, small businesses and companies segments. The The BPI Group units grouped according to their functions are Bank’s range of liability-side products, such as time deposits, under the direct command of Banco BPI’s Executive Commission. unit trust funds, structured products and capitalisation insurance, is concentrated as a single unit denominated Central structures “Customer Resources”. This group embraces the entire universe of shared services (of the back-office kind) which acts as direct support to the Group’s Channels other units by undertaking the development and maintenance of BPI possesses a multi-channel distribution network, fully its operational, physical and technological infrastructure. integrated, composed of 483 retail branches, homebanking services (BPI Net), telephone banking (BPI Directo), specialised Credit risks branches and structures dedicated to the corporate and The Executive Committee for Credit Risks is the body that takes institutional segment, 4 wholesale centres, 44 corporate centres the principal decisions concerning the aspects relating to the (medium and large-sized) and 5 institutional centres. Outside concession, monitoring and recovery of lending operations. At a Portugal, BPI is engaged in commercial banking business in more operational level, credit risk management is segregated by Angola and Mozambique, through two local-law banks – Banco five segments: individuals, small businesses, companies, de Fomento (100% held by the BPI Group) and BCI Fomento institutional banking and securities. The manner in which the (30% held by the BPI Group), respectively. It also has a number various risks are managed at the BPI Group is comprehensively of branches and representative offices which essentially provide dealt with in a separate chapter in the Directors’ Report. support to Portuguese emigrant communities.
Market risk Brand and quality The Executive Committee for Market Risks is the body that Quality, Training, Communication and Brand Management are makes the main decisions concerning the activities which entail managed under the direction of the same member of Banco market risks for BPI. It is primarily responsible for formulating BPI’s Executive Committee. This arrangement has as its goal overall strategy and operating regulations, fixing the limits for prioritising service quality, thereby entailing close coordination treasury exposures to be adhered to by the Finance Division, and between the quality, technical and behavioural programmes, as defining the parameters for the management of long-term well as those covering brand communication and development. structural positions (interest rate or currency risks) and fixing the global limits for value-at-risk (VaR).
Marketing The marketing function is carried out in a segregated manner according to the segmentation between Individuals and Small Businesses, on the one hand, and Companies on the other. In the case of Individuals and Small Businesses Marketing, this function is undertaken by two Divisions which report to the same executive head: Strategic Marketing – concentrated above on the management of the systems CRM (Customer Relationship Management) – and Operational Marketing – focusing on the coordination of the sales function. The Marketing Division – Companies handles all aspects relating to communication, information and the management of databases associated with commercial activity directed at corporate Customers.
256 Banco BPI | Annual Report 2003 THE GROUP'S FUNCTIONAL ORGANISATION CHART
Banco BPI
General Meeting
Banco BPI's Audit Board Board of Directors Audit and Internal External Auditors Company Control Committee Secretary Banco BPI's Internal Auditors Executive Committee Group functions Accounting and Planning Legal Financial Management Risk Analysis and Control Human Resources Investor Relations Public Relations Financial and Economic Studies
Executive Committee Executive Committee Executive Committee Executive Committee for Credit Risks for Commercial Banking for market Risks for Investment Banking
Business Central structures Areas Informations Systems Domestic Overseas Asset Private Investment Organization Commercial Banking Commercial Banking Management Equity Banking Securities, Transfers and Loans Operations and Procurement Premises and Fixed Assets Securities Banks Individuals and Small Corporate Banking, Banco de Fomento Equities Businesses Banking Institucional banking Angola Corporate Finance and Project Finance Private Banking Banco BPI Cayman Credit Risks Individuals and Small Large and Medium-sized BCI – Fomento1 BPI Suisse Businesses Companies, Wholesale Banking, Mozambique Institutional Banking, Project Finance, Internacional Madrid Marketing Operacional Marketing Marketing – Companies Strategic Marketing Product Factories Branches Customer Resources Santiago de Compostela Personal Loans Madrid Cards Paris Real Estate Financing Motor Car Financing Leasing, Factoring and Documentary Credits Representative Channels offices Channels Traditional network Paris BPI Online Investment Centres Corporate Centres Geneva Balcões in-store Institutonal Banking Hamburg Electronic Banking Newark Automatic Banking Caracas Telephone Banking Johanesbourg BPI Online / BPI Net Housing shops Other Real Estate Channels Other Motor Car Finance Channels Emigration Internacional
Business support Brand Communication and Management Quality Training Public Relations Protocols 1) 30% shareholding.
Annexes | The BPI Group’s Corporate Governance Report 257 5. Risk Management
5.1. RISK MANAGEMENT PRINCIPLES 5.2. DIVISION OF RESPONSIBILITIES IN RISK CONTROL AND Risk management at the BPI Group is based on the permanent MANAGEMENT identification and analysis of exposure to different risks – The policy, procedures and allocation of powers amongst the counterparty risk, country risk, market risks, liquidity risk, Group’s various bodies and departments on matters relating to operating and legal risks – and on the adoption of strategies the control and management of the Group’s risks are described aimed at maximising profitability within predefined and duly in detail in a separate chapter of the directors’ report. supervised limits. Management is complemented a posteriori by analysis of performance indicators.
Matrix of responsibilities for risk management and control
Identification and analysis of exposure Strategy Limits and control Evaluation of Performance Credit / AACR: Ratings and Scorings (PDs, LGD) CA, CEBC, CERC: Overall strategy CA, CERC, DRC, AACR, DIG, DM CA Counterparty risk for all loan segments and approval of substantial and risk areas of the Credit operations Departments: Limits CEBC, CERM, CERC AACR and DIG: Debt securities and loans to Financial Institutions – identification DRC and Credit Divisions: Approval CA, CACI, CEBC, CERC, AACR, Planning Division, AACR of external Ratings of operations Internal and external Auditors, Bank of Portugal: Control All the Divisions DRC – Empresas: Expert System
AACR: Exposure to derivatives
AACR: Overall analysis of exposure to credit risk Country Risk DIG: Analysis of individual country risk CA and CERM: Overall strategy
Recourse to external Ratings and analyses DIG, DF, Equities Dept., Markets Dept.: Operations AACR: Analysis of overall exposure Market risk AACR: Analysis of risk by Books / CA and CERM: Overall strategy CA, CERM, AACR: Limits instruments and global risks – interest rates, currencies, shares, commodities DF, Equities Dept. and DM: CA, CACI, CERM, AACR, Internal Operations and external Auditors, Bank of Portugal: Control
Liquidity risk Finance Department, Equities CA and CERM: Overall strategy Department and Markets Department: Individual risk analysis of liquidity, by instrument
AACR: Analysis of overall liquidity risk
Operating Risks AACR: Analysis of overall exposure CA: Overall organisation CA, CERM, DORG, AACR: Regulation and limits DORG and all the Departments: DORG: Regulations Identification of critical points CA, CACI, AACR, internal and external Auditors, Bank of Portugal: Control
Legal risks Legal Division CA, CACI, Legal Dept., internal and external Auditors, Bank of Portugal: Control
AACR – Assessoria de Auditoria e Controle de Riscos (Audit and Risk Control Advisory Services); CA – Conselho de Administração (Board of Directors); CACI – Comité de Auditoria e de Controlo Interno (Audit and Inteernal Control Committee); CEBC – Comissão Executiva da Banca Comercial (Commercial Banking Executive Committee); CERC – Comissão Executiva de Riscos de Crédito (Credit Risk Executive Committee); CERM – Comissão Executiva de Riscos de Mercado (Market Risk Executive Committee); DIG – Direcção Internacional do Grupo (The Group’s International Division); DORG – Direcção da Organização (Organisation Division); DRC – Direcção de Riscos de Crédito (Credit Risk Division).
258 Banco BPI | Annual Report 2003 6. External Auditors
Deloitte – Portugal, a member firm of the international network On the other hand... Deloitte Touche Tohmatsu, are the BPI Group’s external auditors.
The partner in charge of the audit of Banco BPI’s consolidated the Companies Code provides that the members of the Audit financial statements is Maria Augusta Cardador Francisco. Board – of which the Portuguese Statutory Auditors («Revisores Oficiais de Contas –ROCs») form part – are elected by the The firm of Portuguese Statutory Auditors («sociedade de General Meeting, which reinforces their independence vis-à-vis Revisores Oficiais de Contas – SROC) responsible for the Legal the Company’s management team; Certification of Accounts is Magalhães, Neves e Associados. This company belongs to the Deloitte – Portugal network. the Statutory Auditors’ Professional Statutes provide that anyone who has served in the last three years as a member of 6.1. INDEPENDENCE a company’s administrative or management bodies, cannot BPI recognises and subscribes to the concerns manifested, exercise the function of ROC of the same company. In the amongst others, by the CMVM (Securities Market Commission), same manner, the ROC’s and partners in a firm of ROCs who in by the Commission of the European Communities and by IOSCO1 the last three years have acted as the statutory auditors of regarding the safeguarding of auditors’ and statutory auditors’ companies or entities, are barred from exercising functions as independence vis-à-vis the audit and/or statutory audit Client. members of such companies’ or entities’ administrative or BPI believes that this independence – in spirit and in fact – is management bodies. essential for ensuring the public’s trust in the reliability of their reports and in the credibility of the financial information As a principle, BPI refrains from entering into any employment published. contract with an auditor or ROC before a significant period of time has transpired after the termination of auditor or ROC BPI is of the opinion that its auditors and statutory auditors are relationship. Indeed, no auditor or ROC has ever been admitted independent within the context of the regulatory and professional by BPI during the course of its more than 22-year history. requirements applicable and that their objectivity is not compromised. BPI has incorporated into its governance practices and policies several mechanisms which safeguard the At the same time, Deloitte – Portugal (BPI’s appointed independence of the auditors / ROCs. Namely: external auditor) has, according to information supplied by it to BPI, implemented policies and procedures the appointment of the external auditor is the responsibility of designed to ensure that that its world-wide network the Audit and Internal Control Committee, which as referred to provides quality services and complies with all the in a separate chapter, is mandatorily composed solely of applicable independence and ethical rules. These members with no executive functions; policies and practices are based on those issued by IFAC (International Federation of Accountants) and
the companies which audit the BPI Group’s accounts, as well complemented by national or other more stringent rules, as the persons in charge of the relevant audit work, have no namely, those issued by the SEC (U. S. Securities and interest – effective or imminent – financial, commercial, Exchange Commission), those envisaged in the Sarbanes Oxley Act and the European Commission’s employment, family or of any other nature – other than those recommendation of 16 May 2002 on auditors’ which result from the normal course of their professional independence. activity – in BPI Group companies, capable of leading a reasonable and informed third party to conclude that such The disclosure of the independence and ethics control interests could compromise the auditor’s independence; system is assured by means of strict standards which are periodically updated and made available to all persons the BPI Group does not contract persons who maintain working for the Deloitte firm via Intranet. Internal professional ties with the Auditor or the Portuguese Statutory training courses are held periodically dealing with Auditors. independence and ethics, attendance of which is compulsory.
1) IOSCO – International Organization of Securities Commissions.
Annexes | The BPI Group’s Corporate Governance Report 259 The functioning of the control system for independence and and updating of the global list of Deloitte clients with ethics is in the first place assured by the designation at world- securities listed on stock exchanges (“International Restricted -wide and national level of partners with considerable audit Entities List”), the analysis of information produced by experience (“Practice Directors”), with no routine management independence management software “GIMS” (which covers responsibilities and whose function in each respective clients, persons and services provided), control of the process jurisdiction is to take charge of all matters relating to involving the annual confirmation of independence, carrying independence with the Deloitte organisation. Their brief out of periodic testing and inspection programmes and the includes the implementation and maintenance of approval and application of disciplinary procedures in cases of possible non- consultations mechanisms (between different service lines and -compliance with the prescribed independence and ethics between different countries or jurisdictions), the management rules.
6.2. REMUNERATION The remuneration paid to Deloitte and its network1 for services according to the nature of the work and the company to whom rendered to BPI Group companies in 2003 amounted to EUR the services were provided: 1.4 million. This figure is broken down in the table below
Amounts expressed in thousands of euros Banco Português de Other BPI Grup Type of service Banco BPI Total Investimento companies Statutory audit 425 125 380 858 Other attest services 69 13 37 118 Tax consulting 310 66 22 398 Other services 14 0 52 66 Total 818 203 419 1 440
Deloitte and its network did not provide any service to the BPI 6.3. OTHER SAFEGUARD MECHANISMS Group in areas such as financial information technology, internal The Audit and Internal Control Committee will approve all the audit, valuations, legal defence, recruitment, amongst others, remuneration payable to the external auditors, as well as all the which are capable of generating situations of conflict of interest services which might be rendered to the BPI Group. and loss of quality of the audit and statutory audit work. In April 2004, Banco BPI's Board of Directors will deliberate on The terms of the remuneration due for the statutory audit for the alterations to be introduced to the regulations of the Audit and 2004 have already been approved. Internal Control Committee, with the object of attributing to the Committee the powers that will permit refining the mechanisms for safeguarding the independence of the external auditors, namely, subjecting all the services to be rendered by the external auditors and respective remuneration to the Committee's prior consideration.
1) The network of BPI's auditors comprises Deloitte and the Statutory Audit firm (SROC) Magalhães, Neves & Associados, and conforms with the definition of “Network” set out by the European Commission in its Recommendation no. C (2002) of 16 May 2002.
260 Banco BPI | Annual Report 2003 7. Remuneration
7.1. REMUNERATION POLICY BPI’s remuneration is founded on five pillars:
Performance practice for a given area of specialisation, degree of The remuneration of BPI’s Directors and Employees is directly responsibility and geographical area. With this policy, BPI aims associated with the performance levels attained: to attract and retain the most efficient and lucrative people who display the most potential for the organisation. by the Bank; Strategy by the business or business-support unit to which the person The remuneration which is attributed to a specific Employee is concerned is associated; also influenced by BPI’s specific needs and priorities at any given moment, as well as by the importance and singularity of by their individual merit. the person’s contribution to the organisation.
The criteria used in ascertaining the performance level and Equity relative weight of each one of the forementioned areas varies BPI remuneration practices are founded on uniform, according to the functions and degree of responsibility of the consistent, fair and balanced criteria. person concerned. Alignment with the Shareholders Competitiveness All the Directors, Managers and part of the Employees have a BPI seeks to offer to its Directors and Employees remuneration portion of their remuneration which is anchored to the packages which are competitive taking into account market performance of Banco BPI shares on the stock exchange.
The remuneration attributed to BPI Group Directors and 7.2. REMUNERATION OF MEMBERS OF BANCO BPI AND Employees includes a fixed and a variable component, with the BANCO PORTUGUÊS DE INVESTIMENTO BOARDS OF weight of the latter in the total increasing with each one’s level DIRECTORS of responsibility and merit. The amount of the fixed remuneration of the Board of Directors and of the Executive Committee, as well as the variable The annual attribution of variable remuneration to the Group’s remuneration of the Chairman and Deputy-Chairman of the senior staff with the highest responsibility results from the Executive Committee of Banco BPI's Board of Directors are fixed individual, assessment made by Banco BPI’s Executive by the Remuneration Committee. Committee. As concerns the other members of Banco BPI’s Executive Employees at the Individuals and Small Businesses commercial Committee and the other members of Banco Português de network also benefit from a variable component that is Investimento’s Board of Directors, the Chairman of Banco BPI’s dependent upon their commercial performance and which is Board of Directors, taking into account in particular the designated SIM – Sistema de Incentivo e Motivação, (Incentive performance of each one, proposes the amounts to be attributed and Motivation System), the conditions of which are revised by way of variable remuneration to the Remuneration Committee, quarterly. which considers these proposals and approves the remuneration due. In point 7.3 – Variable Remuneration in Shares programme (Portuguese initials – RVA) detailed information is provided The following remuneration was paid to the members of Banco about this important instrument for reinforcing the alignment of BPI's Board of Directors for the exercise of their functions in Employees’ and Directors’ interests with those of the 2002 and 2003 (in thousands of euro): Shareholders.
Annexes | The BPI Group’s Corporate Governance Report 261 Remuneration of members of Banco BPI encourages individual merit, given that since its is a variable Board of Directors1,2 Figures in thousands of euro component of remuneration, the amount thereof grows in step 2002 2003 with the individual’s performance and merit; Fixed Variable Total Fixed Variable Total
Executive2,3 1 668.0 2 845.0 4 513.0 1 649.4 2 825.0 4 474.4 aligns the interests of the Directors and Employees with those Non Executive 486.8 – 486.8 486.8 – 486.8 of the Shareholders, given that the income is intrinsically tied Total 2 154.8 2 845.0 4 999.8 2 136.2 2 825.0 4 961.2 to the performance of the BPI share on the stock exchange, 1) The Banco BPI Board of Directors was designated until 20 December 2002 as BPI while the importance of this incentive relative to the total SGPS’s Board of Directors 2) The variable portion of Banco BPI executive directors' remuneration were up until remuneration rises with the level of responsibility. This 2002, deliberated by the Remuneration Committee on a date subsequent to the stimulus is intensified by the existence of the option to buy holding of the Annual General Meeting; since 2003 it is deliberated at the time the results are released. The aggregate amount of the remuneration paid to the Executive BPI shares, thereby permitting the leveraging of the gains from Directors cannot exced 5% of the year’s net profit (article 25 of the statutes). the future appreciation of the shares, while a negative trend in 3) Remuneration earned for functions exercised not only at Banco BPI, but also at all the companies over which Banco BPI has a controlling or group relationship, in conformity the share price returns a nil value to the options. with the changes introduced to the Annex to the CMVM’s Regulation no. 7 / 2001 and by CMVM Regulation no. 11 / 2003. boosts fidelity and retain talents – given that the RVA incentive is made available to the beneficiary in phases, from the award It is BPI Group policy that members making up Banco BPI’s date to the end of the third year thereafter, and under the Executive Committee and the Directors of Banco Português de condition that the beneficiary maintains a connection with the Investimento may only serve on the governing bodies of other Group. This effect is all the more important the higher the companies as representatives of BPI. The remuneration individual’s responsibility and merit and constitutes an attributed to them for the exercise of these positions are important means for the positive selection of human resources. considered in the global remuneration fixed by the Remuneration Committee. These Directors are also barred from exercising any Extension of the RVA programme other remunerated functions. The variable component of remuneration, which up until 2000 was paid wholly in cash, began to be paid with effect from 2001 7.3. SHARE INCENTIVE SCHEME (PORTUGUESE INITIALS – RVA) to Directors and Employees covered by the RVA partly in cash Global description and partly in shares and options. For these, the portion of the The BPI Group has a variable remuneration programme in shares share and options component (RVA) of variable remuneration (Portuguese initials – RVA) which entails the awarding of a varies between a minimum of 10% and a maximum of 50%, portion of the variable remuneration in the form of Banco BPI with the percentage rising commensurately with the level of the shares and share options. This programme has been on force at Employee’s or Director’s responsibility. the Group since the beginning of the 2001 financial year. The number of Executive Directors of the banks, Managers and The programme encompasses all the executive directors of Employees of the BPI Group covered by the RVA-2003 was Banco BPI and the directors of Banco Português de 2 168, or 36% of the Group's permanent workforce in Portugal. Investimento, and all Employees whose annual variable remuneration is equal to or exceeds EUR 2 500.
The RVA constitutes an important management instrument for the Group’s human resources and strengthens the alignment of Directors’ and Employees’ interests with the ultimate goal of the Group and its Shareholders – the creation of value:
262 Banco BPI | Annual Report 2003 % of the RVA in No. of persons covered variable remuneration RVA-2001 RVA-2002 RVA-2003
Chairman and Deputy-Chairman of Banco BPI Executive Committee1 50% 2 2 2 Other Directors of Banco BPI Executive Committee1 40% 5 5 5 Other Directors of Banco Português de Investimento2 35% 8 8 7 Managerial staff, of whom: 498 482 481 Central Managers 30% 45 38 39 Deputy central Managers 25% 61 59 58 Managers 20% 73 78 81 Assistant and Deputy Managers 15% 319 307 303 Other Employees 10% 1 566 1 660 1 673 Total -2 079 2 157 2 168 1) Executive Directors of BPI SGPS in 2001 and up until 20 December 2002. 2) Other Directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002.
Attribution conditions Share scheme As a general rule, shares are attributed under a condition The Executive Committee, just as it did with respect to the subsequent, in terms of which title thereto is transmitted RVA-2001, can also award shares subject to a condition immediately to the beneficiary. However, their free disposal takes precedent, whereby both the transfer of title and their free place in a phased manner – 25% are released immediately on disposal occurs in a phased manner and simultaneously, with attribution, while the remaining 75% are placed at the both being subject to the condition of the maintenance of an beneficiary’s disposal at the end of the first, second and third employment contract. year with effect from attribution date, and providing that the beneficiary continues to be employed by the Group on those dates under pain of the transfer of the other shares still not released being cancelled.
Share scheme – attribution, transfer and free disposal
Attribution under condition subsequent Attribution under condition precedent
Attribution Transfer Free disposal1 Attribution Transfer Free disposal1 Attribution date 100% 100% 25% 100% 25% 25% 1 year later - - 25% - 25% 25% 2 year later - - 25% - 25% 25% 3 year later - - 25% - 25% 25% 1) The consolidation of the transfer of the shares which are released occurs on the dates they become freely disposable.
Option scheme The options to purchase Banco BPI shares are transmitted to the Option scheme – Attribution, transfer and free disposal beneficiary’s title on the attribution date. The options are not Attribution Transfer Free disposal tradable. The options are exercisable between the end of the Attribution date 100% 100% - first year after their attribution – provided the employment 1 year later - - Start of exercise period relationship still exists (if not, the transfer is cancelled) – and 2 years later - - the end of the fifth year after the attribution date. 3 years later 4 years later 5 years later - - End of exercise period
Annexes | The BPI Group’s Corporate Governance Report 263 Right to dividends and right of preference in capital increases Determination of the quantity of shares and purchase options to and voting rights at General Meetings attribute Banco BPI shares transferred to the ownership of a Director or The number of shares and options to be attributed results from Employee, either by the direct attribution of shares under the the quotient between the variable remuneration portion to be RVA scheme or through the exercise of the options attributed, attributed in the form of the RVA incentive scheme and the are identical in nature to other Banco BPI shares and confer, in value laid down for the attribution of the shares and purchase these terms, the identical rights, namely, as to dividends, options. preference in capital increases and voting at General Meetings. In the 2001 and 2002 RVA programmes, the weight of the share In the case of the shares attributed under the condition and options components on the amount of the RVA incentives precedent in 2001 and still not transferred to the Director or was mandatorily identical (50% / 50%), whereas in the 2003 Employee, additional shares are attributed by way of adjustment RVA programme the Directors and Employees were given the for the payment of dividends or by capital increase through the option to select the relative weight of each one of the incorporation of reserves and, in the case of a capital increase components from amongst the following combinations: reserved for shareholders, the possibility exists of acquiring additional shares in the proportion set by the coefficient of 50% shares / 50% options (previous regime); subscription of the capital increase and a price identical to the subscription price. 75% shares / 25% options;
For their part, in the case of options, the number held and the 100% shares / 0% options. exercise price shall be adjusted by capital increases involving the incorporation of reserves or the subscription reserved for Prohibition periods for the exercise of options and trading shares shareholders in such a way that the position of the holder of the Share trading options remains in substance identical to the situation before Trading in shares attributed under the RVA programme and those the occurrence of the fact. resulting from the exercise of are subject to the provisions embodied in the codes of conduct in force at the Group relating Determination of value to the trading of Banco BPI shares by Directors and Employees. The value of the shares for attribution purposes corresponds to the weighted average of the share price at the last 10 stock Exercise of options exchange sessions before the attribution date. Options can be exercised at any moment during the exercise period. However, the sale of shares resulting from the exercise of In the case of options their fair value is used, with the options and, therefore, the realisation of the gain afforded under attribution value of the shares being the exercise price. The fair the option scheme, is subject to the prohibition periods laid value of the options is calculated based on a model which, as down in the codes of conduct relating to the trading of Banco regards its characteristics and assumptions, complies with BPI shares by Directors and Employees. accounting rules in force and reflects the best information available.
264 Banco BPI | Annual Report 2003 Credit line for the exercise of options and maintenance of shares Powers of the Executive Committee for the execution / on hand modification of the RVA incentive scheme At the start of 2004, an RVA Credit Line was created which is In the regulations of the RVA share incentive scheme, the now available to the Bank’s Employees and Executive Directors principal functions attributed to the Executive Committee for who wish to exercise the RVA options and retain in portfolio the the programme's execution / modification are: shares thus acquired.
fixing the maximum number of shares and options to be As regards the use of the credit line by members of the awarded each year, as well as the criteria (of which the Executive Committee, the Audit Board and the Bank of Portugal evaluation of each Employee always forms part) and the gave their approval, at the same time as the Remuneration conditions underlying the distribution of these benefits Committee was informed. amongst the Group's Employees;
An amount, with a minimum limit of EUR 2 500 and up to the adoption, at each attribution, of a model for valuing 75% of the market value of shares to be acquired as a options which permits a more reasonable and realistic consequence of the exercise of the respective options, is made calculation of their fair value; available under this credit line, up to a maximum of 100% of the amount required for the exercise of the options. interpreting the RVA regulations and covering any loopholes;
Approval, regulation, directives and responsibilities for the making occasional changes to the RVA's contractual provisions, execution and modification of the RVA such as for example, bringing forward the option maturity dates The general lines of the RVA scheme were approved by the or dispensing with the verification of the suspensive General Board1 on 10 December 1998. At the Shareholders’ conditions. General Meeting of 21 April 1999, the Chairman of the Board of Directors presented to the Shareholders a proposal authorising The annual execution of the RVA scheme, responsibility for the acquisition and sale of treasury stock by the company for the which is vested in the Executive Committee by delegation of the purpose of making the execution of the incentive scheme viable. Board of Directors, is overseen by the Audit and Internal Control This motion was carried with 99.99% of the votes in favour, and Committee and by the Board of Directors itself. has been endorsed in following years. 2003 share incentive programme The general provisions of the RVA scheme, as well as powers of Fixing of the attribution price of shares and purchase options the governing bodies to execute and amend it, are set out in In terms of the RVA regulations, the Executive Committee specific regulations. The RVA Regulations were approved by the designated 23 February 2004 for purposes of the attribution of General Board on 25 February, with alterations being introduced shares and purchase options in respect of the 2003 financial on 3 March 2004. year.
RVA execution directives The price of the shares was fixed at 3.13 euros and The actual aspects of the RVA Scheme’s execution are regulated corresponded to the weighted average of the 10 stock exchange in a number of directives approved by the Board of Directors, sessions which took place between 9 and 20 February 2004. which are binding on the Executive Committee’s actions.
1) Management body in the BPI Group’s previous governance model.
Annexes | The BPI Group’s Corporate Governance Report 265 The value of the options, for an exercise price identical to the the approach used by BPI to determine the value of the option share attribution value, was fixed at 0.45 euro. In accordance and the assumptions made – namely, the estimated average life with the powers laid down in the RVA Regulations, the Executive of the option and estimated volatility – are reasonable and Committee used the Black-Scholes model for valuing the realistic and result in a reasonable option valuation. Watson options, taking into consideration the following parameters: Wyatt confirmed that BPI’s approach is acceptable for purposes of attributing options and that in their opinion, it conforms to
estimated life of the option 3.3 years (2/3 of the contractual the international accounting standard IFRS2. maturity); Attribution of shares and purchase options
estimated volatility of 21.5%; In 2003, the variable remuneration of the Executive Committee of Banco BPI’s Board of Directors amounted to EUR 2.8 1 risk-free interest rate of 3% for the estimated life of the million . Of the amount of variable remuneration received, option. EUR 1.3 million referred to RVA incentives, that is, 45.3% of the variable remuneration figure. he Executive Committee requested the firm Watson Wyatt to give an independent opinion on the methods and procedures adopted EUR 1.3 million was attributed by way of variable remuneration by BPI in the 2003 RVA programme for the purpose of in respect of 2003 to the members of Banco Português de determining the value of the options at attribution and their Investimento’s Board of Directors (who are not members of accounting treatment in accordance with the IAS. Watson Banco BPI’s Executive Committee). Of this figure, 35% Wyatt’s opinion was issued on 25 February 2004 and states that corresponded to RVA incentives.
Composition of variable remuneration relating to 2003 Figures in thousands of euro
RVA 2003 Cash Total Share scheme Options scheme Total Comissão Executiva do Banco BPI 1 544 692 589 1 281 2 825 Conselho de Administração do Banco Português de Investimento1 842 227 227 453 1 295 Quadros Directivos e outros Colaboradores2 22 366 2 207 1 409 3 616 25 982 Total 24 751 3 125 2 225 5 350 30 102 1) Does not include the members of the Executive Committee of Banco BPI’s Board of Directors. 2) Group Employees covered by the RVA scheme.
1) Banco BPI’s Remuneration Committee deliberated about the amount of variable remuneration attributed to the members of the Executive Committee of Banco BPI’s Board of Directors and of Banco Português de Investimento’s Board of Directors on 28 January 2004.
266 Banco BPI | Annual Report 2003 The number of shares awarded to Banco BPI executive directors under the 2003 RVA programme is about 221 thousand.
Share attribution
RVA 2001 RVA 2001 (Figures adjusted for dividends and the RVA 2002 RVA 2003 2002 share capital increase) Manner of attribution Under condition subsequent and Under condition Under condition under condition precedent subsequent subsequent Attribution date 21 March 02 22 February 03 23 February 04 Attribution price 2.67 euro 2.54 euro1 2.14 euro 3.13 euro No. of shares attributed2 Banco BPI Executive Committee3 215 875 218 996 265 307 220 930 Banco Português de Investimento's Board of Directors4 86 888 89 452 96 501 72 409 Managerial staff and other Group Employees 635 277 679 497 810 721 705 048 Total 938 040 987 945 1 172 529 998 387 1) Attribution price of the RVA-2001 adjusted for the capital increase realised in May 2002. 2) The number of shares initially attributed under the RVA 2001 was adjusted by the payment of dividends and by the share capital increase realised by BPI SGPS (now Banco BPI) in May 2002. The adjustments entailed the attribution of an additional 37 211 shares (against the payment of EUR 1.75 per share) to Directors, managerial staff and Employees as an adjustment for the capital increase realised and 12 754 shares as adjustment for the distribution of dividends in respect of the 2001 financial year. In this last point, it is important to note that only the Director or Employees who opted for the suspensive condition regime – in terms of which the shares in a captive situation remain in legal terms the Bank’s property – were the object of the forementioned adjustment. Those members who opted for the condition subsequent regime received a dividend relating to all the shares – captive and available – in cash. 3) BPI SGPS’s Executive Directors in 2001 and up until 20 December 2002. 4) Other Directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002.
The following is the calendar for the availability of the shares awarded under the RVA-2001, RVA-2002 and RVA-2003 programmes:
Availability RVA-2001 RVA-2002 RVA-2003
25% 21 Mar. 2002 - - 25% 21 Mar. 2003 22 Feb. 2003 - 25% 21 Mar. 2004 22 Feb. 2004 23 Feb. 2004 25% 21 Mar. 2005 22 Feb. 2005 23 Feb. 2005 25% - 22 Feb. 2006 23 Feb. 2006 25% 23 Feb. 2007 1) The effective availability occurs after compliance with the essential procedures for the contracting of the award operation.
Annexes | The BPI Group’s Corporate Governance Report 267 The number of options attributed to Banco BPI’s executive directors under the 2003 programme is 1 310 thousand.
Attribution of share purchase options
RVA-2001 RVA 2001 (Figures adjusted by the 2002 share RVA 2002 RVA 2003 capital increase)1 Attribution date 21 March 02 22 February 03 23 February 04 Exercise period 21 March 03 to 21 March 07 22 February 04 to 23 February 05 to 22 February 08 23 February 09 No. of shares that may be acquired for each option held 1 1 1 1 Exercise price 2.67 euro 2.54 euro 2.14 euro 3.13 euro Value of each option 0.65 euro 0.62 euro 0.33 euro 0.45 euro No. of options granted Banco BPI Executive Committee2 859 725 904 216 1 720 457 1 310 003 Banco Português de Investimento’s Board of Directors3 346 818 364 767 625 761 503 614 Managerial staff and other Group Employees 2 607 040 2 741 681 5 251 558 3 131 802 Total 3 813 583 4 010 664 7 597 776 4 945 419 1) As a consequence of BPI SGPS’s share capital increase (now Banco BPI) realised in May 2002, the exercise price of the options resulting from the RVA-2001 was adjusted from EUR 2.67 to EUR 2.54 and the number of options attributed under the RVA-2001 programme increased by 5%. 2) BPI SGPS’ Executive Directors in 2001 and up until 20 December 2002. 3) Other Directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002
Record of the programme for the attribution of share purchase options – 2001, 2002 and 2003
Executive Committee of Banco Português de Investimento’s Managers and TOTAL Banco BPI1 Management Board2 other Employees
RVA-2001 (number of options) Granted in March 20023, 4 904 216 364 767 2 741 681 4 010 664 exercised in 2002 0 0 0 0 extinguished in 2002 0 0 24 414 24 414 RVA-2001 options do existing at 31 Dec. 02 904 216 364 767 2 717 267 3 986 250 exercised in 2003 0 0 78 634 78 634 extinguished in 2003 0 0 12 570 12 570 RVA-2001 options do existing at 31 Dec. 03 904 216 364 767 2 626 063 3 895 046 RVA-2001 exercisable options at 31 Dec. 03 904 216 364 767 2 626 063 3 895 046 RVA-2002 (number of options) Granted in February de 20034 1 720 457 625 761 5 251 558 7 597 776 exercised in 2003 0 0 11 210 11 210 extinguished in 2003 0 0 25 008 25 008 RVA-2002 options do existing at 31 Dec. 03 1 720 457 625 761 5 215 340 7 561 558 RVA-2002 exercisable options at 31 Dec. 03 0 0 71 896 71 896 RVA-2003 (number of options) Granted in February de 20044 1 310 003 503 614 3 131 802 4 945 419 Exercisable in 2004 0 0 0 0 RVA-2003 options do existing at 31 Dec. 045 1 310 003 503 614 3 131 802 4 945 419 1) BPI SGPS Executive Directors in 2001 and up until 20 December 2002 (date on which BPI SGPS was transformed into Banco BPI). 2) Other Directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002. 3) Number of options granted adjusted for BPI SGPS’s (now Banco BPI) share capital increase realised in May 2002. 4) In terms of the RVA regulations, the number of shares which are object of the options granted in the year cannot exceed 1% of Banco BPI’s share capital at the date of the attribution of the forementioned incentives. Simultaneously, the total number of shares which are object of the options in force (matured or not) cannot exceed at any point in time 5% of Banco BPI’s share capital. 5) Assuming that no options are exercised or extinguished during 2004.
268 Banco BPI | Annual Report 2003 Current situation of the programme for the attribution of options to purchase shares – 2001, 2002 and 2003
Executive Committee of Banco Português de Investimento’s Managers and TOTAL Banco BPI1 Management Board2 other Employees
TOTAL RVA SCHEME Number of options: Options do existing at 31 Dec. 03 2 624 673 990 528 7 841 403 11 456 604 Attribution of 2003 RVA options (in Feb.2004) 1 310 003 503 614 3 131 802 4 945 419 Subtotal (Options do existing in Feb.04)3 3 934 676 1 494 142 10 973 205 16 402 023 Options not exercisable until 31 Dec. 04 1 310 003 503 614 3 131 802 4 945 419 Options exercisable until 31 Dec. 04 2 624 673 990 528 7 841 403 11 456 604 Number of shares needed for the exercise of: Options granted (and not exercised) At the beginning of 2004 1 720 457 625 761 5 143 444 7 489 662 At the end of 20044 1 310 003 503 614 3 131 802 4 945 419 Options exercisable At the beginning of 2004 904 216 364 767 2 697 959 3 966 942 At the end of 20044 2 624 673 990 528 7 841 403 11 456 604 1) BPI SGPS Executive Directors in 2001 and up until 20 December 2002 (date on which BPI SGPS was transformed into Banco BPI). 2) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002 3) After the attribution of the 2003 RVA options. 4) Assuming that no options are exercised or extinguished during 2004.
Accounting treatment BPI records the full cost of variable remuneration attributed, At 31 December 2003, the above-mentioned hedging activity including those associated with the RVA, in the income did not generate any cost or loss for the BPI Group. Should statement for the period in which the attribution is made, in the these occur, such losses or costs will be disclosed in the account “Personnel costs”. To this end, the shares are recorded accounts for the relevant period. at the attribution value and the options attributed are recorded at fair value (on attribution date this is identical to attribution value).
RVA scheme cover (hedging) The BPI Group executes its own hedging of the RVA share and option scheme, holding for this purpose in its portfolio shares earmarked to meet the obligations stemming from the attribution of shares under a condition precedent and options. In order to cover the options scheme, BPI uses its own model.
Annexes | The BPI Group’s Corporate Governance Report 269 Returns on the 2001 and 2002 RVA programmes The effective value of the incentive attributed under the RVA Scheme, the value of the incentive at 2 March 2004 (last stock Scheme is dependent upon the behaviour of the Banco BPI exchange session before the approval of the present report by share price on the stock exchange. the Board of Directors) corresponds, in relation to the attribution value, to an annual average capital growth of 10.7% for the On the basis of the market value of the shares, plus the 2001 RVA and 135.4% for the 2002 RVA. dividends received and the intrinsic value of the options attributed to the Directors and Employees covered by the RVA
Annual average return – Exit on 2 March 20041 ROI for Banco BPI ROI for market Share scheme Option scheme Total RVA Shareholder (PSI Geral) RVA-2001 (attribution date: 21 Mar. 02) +16.7% +4.1% +10.7% +16.7% +4.2% RVA-2002 (attribution date: 22 Feb. 03) +53.6% +214.2% +135.4% +52.2% +39.7% Note: it is assumed that during the period the RVA beneficiary subscribed for the maximum quantity of shares to which he was entitled in the 2002 capital increase, and did not sell shares or exercise options. On 2 March 2004, the share portfolio was valued using the closing price, while in relation to the options portfolio, their intrinsic value was taken into account, that is, the difference between the closing price on 2 March and the exercise price of the options. 1) Last stock exchange session before the approval of the report by the Board of Directors (Banco BPI share’s closing price of 3.21 euro).
It should be noted that the purchase options at the attribution The BPI share price1 Market share price and stock exchange appreciation which equates the date start from a nil or close to zero intrinsic value, but provide value of RVA incentive to the attribution value leverage for capital gains on the stock exchange, while a BPI share price on Break-even2 Share price negative trend in the share price translates itself into a nil value attribution date1 (in euro) appreciation to of the incentive. In this way, the RVA Scheme demands (in euro) reach break-even minimum levels of capital appreciation for the shares on the 2001 RVA stock exchange in accordance with the value fixed for the Share scheme 2.54 2.54 3 0.0% attribution of the shares and options, in order for the effective Options scheme 2.54 3.16 4 +24.4% value of the incentive to be higher than the attribution value. 2001 RVA Programme 2.54 3.04 +19.7% 2002 RVA Starting from these levels, the RVA Scheme provides the Share scheme 2.14 2.143 0.0% Directors and Employees concerned a lever for maximising the Options scheme 2.14 2.474 +15.4% incentive. This effect becomes more evident the higher the 2002 RVA Programme 2.14 2.43 +13.6% responsibility level, given that the relative importance of the 2003 RVA RVA scheme on variable remuneration is indexed to the level of Share scheme 3.13 3.13 0.0% responsibility. Options scheme 3.13 3.58 +14.4% 2003 RVA Programme5 3.13 3.53 +12.8% Note: overall value of the 2001 and 2002 RVA incentives was attributed in equal parts in the form of BPI shares and BPI share purchase options. 1) Banco BPI share price for the purpose of the RVA attributions (average share price of the previous ten stock exchange sessions). 2) Market price of the BPI shares which equates the value of the RVA incentive to the attribution value. 3) Attribution value of the shares. In the case of the share scheme, the dividends relating to 2001 and 2002 and received by the beneficiaries of the 2001 and 2002 RVA programmes, were not taken into account. Had this been done, the break-even would have been reached at a price of 2.38 euro for the 2001 RVA share scheme and at a price of 2.06 euro for the 2002 RVA 2002 share scheme. 4) Exercise price plus attribution value of the options. 5) A group of 50% in shares and 50% in options was assumed.
270 Banco BPI | Annual Report 2003 7.4. PENSION PLANS FOR DIRECTORS OF THE BANKS The pension plan for the Directors of the BPI Group’s Banks is As referred to in note 4.19 to the accounts, these obligations are emboided in two regulations: one which applies to the Directors being recognised as costs by way a plan of annual uniform of the Executive Committee of the ex-BPI SGPS and to the instalments at a rate of 7% and over a period which corresponds ex-members of the Elected Management who, after 9 years of to the remaining active life of the Directors concerned. service, continue to perform management functions at any Bank controlled by it; and the other which applies to the Directors of At 31 December 2003, the balance on the account «provisions Banco BPI (ex-BFB). for pensions of Directors» includes EUR 12 544 thousand, which covered 89.4% of the present value of the obligations for In terms of benefits, the regulations prescribe the payment of past services corresponding to the complementary retirement retirement (old age or disability) and survivors’ pensions, and survivors’ pension plan for the Directors of Banco BPI, calculated in accordance with fixed monthly salary earned in the Banco Português de Investimento and Banco Fonsecas & Burnay month before retirement date and the number of years service, (incorporated in Banco BPI). with the maximum benefit (100%) being attained in the 16th year. 7.5. LOANS TO MEMBERS OF BANCO BPI’S BOARD OF DIRECTORS The pensions paid by the Social Security or by other BPI Group In terms of established policy, the members of the Executive pension plans are deducted from the pensions payable under the Committee of Banco BPI’s Board of Directors benefit from the Directors’ plan. subsidised home loan regime in force at the Banks for all their Employees. Hence, at 31 December 2003, the overall balance For purposes of calculating the obligations allocated to the on mortgage loans granted to members of the Executive Directors’ pension plan, account is also taken of the application Committee of the Board of Directors for the purpose of acquiring of the regulations for the Directors of the Banco Fonsecas & their own homes amounted to EUR 972 thousand. Burnay (incorporated in Banco BPI) to the Directors of Banco Português de Investimento, so that the universe of Directors The terms and conditions – risk evaluation, interest rates, covered at 31 December 2003 was as follows: guarantees furnished, term, etc – under which loans are granted to the members of the Executive Committee of Banco BPI’s Current Retired Total Board of Directors are identical to those applied to the Group’s Number of persons 15 3 18 Obligations (th. euro) 10 201 3828 14 029 other Employees.
As regards the Executive Committee in office, at 31/12/2003 the situation was as follows:
Number of persons 7 Average time of service (in years) 10.4 Obligations (th. euro) 6 359
Annexes | The BPI Group’s Corporate Governance Report 271 7.6. INSURANCE OF BANCO BPI’S EXECUTIVE DIRECTORS The Executive Directors of Banco BPI in current service benefit, as do their Employees, from a range of insurance policies which cover life, illness and accident risks.
Capital insured Policy Risks covered (in thousands of euro) Illness 424 Group life assurance Accident (involuntary cause) 848 Traffic accident 1 272 Personal accident insurance Accident 127 Work accident insurance Dead or professional disability Pension1 Health insurance2 Illness or accident 25 (per year) 1) to himself / herself (or surviving spouse) and to children (if dependents). 2) covers the respective family.
The costs borne by the BPI Group with respect to the above policies totalled EUR 35.3 thousand in 2003.
In addition, the BPI Group bears the cost of EUR 6.2 thousand for contribution to the SAMS relating to three Executive Directors of Banco BPI who benefit from this medical aid scheme.
272 Banco BPI | Annual Report 2003 8. Shareholder control and transferability of shares
8.1. SHAREHOLDER CONTROL 8.2. EXERCISE OF VOTING RIGHTS AND SHAREHOLDER Banco BPI has not adopted any defensive clause impeding the REPRESENTATION free transferability of the shares and the unrestricted review by There are no shareholder agreements of the type referred to in shareholders of the performance of Board members. article 19 of the Securities Code relating to the exercise of company rights, or to the transferability of Banco BPI shares; in At 31 December 2003, the share capital held by shareholders particular, there is no voting or defence agreement for warding represented on the Board of Directors and on the Audit Board off takeover bids. stood at 48.2%. The percentage of the corresponding voting rights, taking into account own shares held by the Group and the A preferential rights' agreement was entered into in 1986 statutory limitation, was 43.4%. Banco BPI’s capital at that date between certain of BPI's most significant shareholders, which was held by 19 740 shareholders. specifies that any of the contracting parties wishing to transfer all or part of the shares covered by the agreement is bound to Banco BPI's statutes stipulate that the votes cast by a single give preference on such disposal to the other contracting parties, shareholder, in his own name and also as the representative of upon the same terms and conditions. another or others, which exceed 12.5% of the company's total votes, shall not be counted. This agreement is presently endorsed by six of Banco BPI’s shareholders who at 31 December 2003 represented 44.7% of The BPI Group’s Directors and Senior Employees do not benefit Banco BPI’s share capital. This agreement has been successively from any indemnity clause of an extraordinary nature, in terms of renewed for periods of three years, the last of which occurred on which they are entitled to be compensated in the event of a 21 August 2003. Any renouncement of this accord must be change occurring in the control of the company (commonly communicated with a minimum of six months’ prior notice. referred to as «golden parachutes»).
Annexes | The BPI Group’s Corporate Governance Report 273 9. Exercise of voting rights and shareholder representation
9.1. ENCOURAGING THE EXERCICE OF VOTING RIGHTS 9.2. ATTRIBUTION OF VOTING RIGHTS Banco BPI actively encourages the exercise of the right to vote, A shareholder can vote provided he owns at least 1 000 Banco either directly – in person or by correspondence (postal or BPI shares on the 15th day prior to the date set for the General electronic) – or by proxy. Meeting. The registration of ownership must be proved to Banco BPI by 6 p.m. of the fifth working day prior to the date set for Under this policy, BPI has implemented a series of measures the meeting. Every 1 000 shares correspond to one vote. designed to combat shareholder absenteeism at General Meetings, amongst which the following: 9.3. PROCEDURES RELATING TO PROXY REPRESENTATION At its own initiative BPI pursues a policy of sending to
acceptance of vote by correspondence, both postal and shareholders the full content of proposed matters to be included electronic, and placing at Shareholders’ disposal ballot papers; in the order of business, as well as proxy forms, accompanied by a self-addressed postage-paid envelope.
ample disclosure of the convening of General Meetings (by postal, electronic mail and by the Internet), the topics to be Proxy representations must be communicated by letter addressed discussed thereat and the different ways of exercising the right to the Chairman of the General Meeting Board, with the to vote; signature duly certified (by a notary, lawyer or legal clerk or by the company). This letter must be received at Banco BPI’s head
detailed description in the meeting notice and preparatory office by 6 p.m. on the fifth day prior to the date set for the documents1 for the General Meeting which are sent to General Meeting. Shareholders2, the procedures to be adopted for those opting for postal or proxy voting (regime enshrined in the statutes). The Chairman of the Shareholders' General Meeting Committee is as a rule available to represent shareholders, expressing in a It should also be pointed out that Banco BPI’s Board of Directors, clear manner his voting intentions where the shareholder does in a positive response to the CMVM’s most recent not stipulate any specific instructions. recommendations, will propose to its Shareholders that at the next General Meeting the amendment to article 12 of the 9.4. PROCEDURES RELATING TO POSTAL VOTING company’s statutes be approved, with a view to shortening the BPI sends annexed to the notice convening the General Meeting, prior period for the deposit and blocking of shares for purposes of ballot papers addressed to the Chairman of the General Meeting taking part in the General Meeting from 15 to 5 business days. Board, by means of which the shareholder can express in a clear form his vote. Each ballot paper, available in Portuguese and The proposals to be submitted for consideration and deliberation English, must be signed and this signature duly certified (by a at the Meeting, as well as any other preparatory information, are notary, lawyer or legal clerk). Ballot papers must be received at placed up to 15 days prior to the date set for the meeting, at the Banco BPI’s head office by 6 p.m. on the fifth working day prior disposal of shareholders at Banco BPI’s head office (Rua to the date set for the General Meeting. Tenente Valadim, 284, Oporto) and on the site www.ir.bpi.pt. The sending of any one of the above-mentioned material, Postal votes count towards the constitution of the General including copies of ballot (voting) papers for the exercise of Meeting quorum and are interpreted in the light of the matters postal voting, may also be requested via a publicly-disclosed appearing in the meeting notice, and do not express any voting e-mail address. intention as concerns new matters.
1) Also available on the Internet at the website www.ir.bpi.pt. 2) To the Shareholders with the right to at least 5 votes.
274 Banco BPI | Annual Report 2003 The postal votes are opened by the Chairman of the General BPI sends1 beforehand to its Shareholders, as an annex to the Meeting Committee, who is responsible for checking their General Meeting preparatory documents, a draft – available in authenticity, conformity with the rules and non-existence of Portuguese and English – that allows them to opt for the system duplicate votes taking into account the presence of the of electronic voting. This draft can also be obtained for the respective Shareholders at the General Meeting. website www.ir.bpi.pt or upon request to the Investor Relations Division. The draft must be signed and the signature must be Votes by correspondence are only considered after the votes authenticated by a notary, lawyer or legal clerk. casts in person on each one of the motions have been counted. The Chairman of the General Meeting informs those present of In the draft the Shareholder is asked, amongst other details, to the number and results of the votes received by correspondence. provide a password and indicate his e-mail address. This document must be received at the Bank’s head office together The manner in which the scrutiny of votes cast by with the respective declaration of share deposit and blockage, by correspondence at the General Meeting is conducted is set out 18.00 hours of the fifth business day before the date set for the in documents made available by BPI for the exercise of voting by General Meeting. correspondence, as well as being described in a separate section of the Investor Relations’ website devoted to this event. At the end of the fifth business day prior to the Meeting date, BPI sends an email to the Shareholder indicating his counter The Company Secretary is charged with ensuring the password which, jointly with the initial password, will give him confidentiality of the votes received by correspondence until the access to an electronic ballot paper on a page at the site day of the General Meeting. On that date, this responsibility is www.ir.bpi.pt. The Shareholder can exercise his voting right on transferred to the Chairman of the General Meeting Committee the fourth and third business days before that set for the up to the moment of voting. Meeting.
The postal vote cast by a shareholder who is present or represented at the General Meeting shall be ignored.
Although voting by correspondence by its very nature constitutes an alternative to shareholder representation, nothing prohibits that both forms be cumulative.
9.5. PROCEDURES RELATING TO VOTING VIA ELECTRONIC MEANS BPI offers its Shareholders for the first time at the General Meeting to be held on 20 April 2004, the possibility of casting votes by electronic means.
The procedures required for voting by electronic means are in part similar to those required for postal voting. That is:
1) To the Shareholders with the right to at least 5 votes.
Annexes | The BPI Group’s Corporate Governance Report 275 10. Exercise of corporate rights by BPI Group entities
The BPI Group's entities operating on the market as institutional quality of the system of governance and supervision; investors – the fund-management companies, the pension-fund management company, the investment bank and the transparency in the provision of information; development capital companies – are bound to the rules designed to ensure the diligent, efficient and critical use of the good environmental practices. rights attaching to the negotiable securities of which they are the holders or whose management has been entrusted to them, On the other hand, BPI, on its own initiative, does not invest in namely as concerns information and voting rights. companies operating in the pornography or arms industry. However, BPI could be the holder of financial interest in The asset-management entities belonging to the BPI Group, companies associated with these businesses through the besides the traditional investment criteria associated with the investment in the participating units of unit trust funds managed risk / return relationship, also take into consideration in the by non-Group companies, or through other forms of indirect investment decision-making process, the following factors: investment.
276 Banco BPI | Annual Report 2003 11. Code of ethics and professional conduct
11.1. COMMITMENT TO STRICT STANDARDS OF ETHICS AND The ethical and professional conduct regulations imposed upon PROFESSIONAL CONDUCT those who work for the BPI Group are intended to guarantee The professional activity of the members of governing bodies and professional confidentiality, the defence of Customers' interests of Employees of the companies belonging to the BPI Group and the prohibited use of privileged information for personal universe, is governed by the following principles: gain.
respect for absolute independence with respect to the interests 11.2. EQUITY AND SAFEGUARDING AGAINST CONFLICT OF between the Company and its Customers, between personal INTERESTS interests and those of the Company, and those of the The members of Banco BPI’s Board of Directors are bound to Customers amongst themselves; communicate any interest, direct or indirect, that they, any member of their families or any entities to which they are
professional competence; professionally connected, may have in the Company in respect of which the possibility of the assumption of an equity interest, or
personal integrity. a loan or any service by BPI Group Companies or Banks, is being considered. In such circumstances, the Directors must inform With the aim of safeguarding absolute respect for all the the nature and extent of such interest and, where this is standards of an ethical and professional conduct nature at each substantial, they must refrain from taking part in the discussion of the BPI Group's companies, Employees, members of and/or voting of any proposal that such operation may entail. governing bodies, service providers and external consultants are obliged to declare in writing that they have full knowledge of the As concerns the Customers of the BPI Group’s Banks and norms appearing in the following documents: Companies, every Customer is accorded equal treatment in all situations where there is no motive of a legal and/or contractual
codes of conduct of the respective associations, namely, the nature to proceed otherwise. This does not contradict the Associação Portuguesa de Bancos (APB) and the Associação practice of differentiated conditions on the realisation of Portuguesa das Sociedades Gestoras de Patrimónios e de operations after having weighed the attendant risks, their Fundos de Investimento (APFIN); profitability and/or the Customer’s return.
BPI's own codes, adapted in accordance with the type of 11.3 VIOLATION OF PROFESSIONAL SECRECY AND activity carried out by each one of the banks and investee CONFIDENTIALITY companies, and which in certain instances contain even more In contacts with Customers and the markets, members of the restrictive rules than those embodied in directives issued by governing bodies and Employees of BPI Group companies must the associations to which they belong and/or by the supervisory exercise the utmost discretion and practise professional secrecy authorities. BPI’s code of conduct was approved for the first regarding the services provided to their Customers and, time in March 1994, since when its has been revised furthermore, about facts or information relating to such occasionally. Customers or third parties, knowledge of which stems from the exercise of the respective activities. This duty only ceases by way Breach of the duties envisaged in the aforesaid codes is of the written authorisation of the person concerned or in the punishable according to the gravity of the infringement, the cases expressly envisaged in the law. The duty of professional degree of the perpetrator’s culpability and the consequences of secrecy continues even after the cessation of functions as the act, through the application of a sanction which is graduated member of the governing bodies or as Employee. on a case-by-case basis, ranging from a verbal admonishment to dismissal with just cause. Disciplinary responsibility is independent of responsibility of a civil, minor offence and criminal nature.
BPI Group’s codes of conduct in force are available for consultation or download at the website www.ir.bpi.pt or upon request to the Investor Relations Division (see contacts under point 12.2 of this report).
Annexes | The BPI Group’s Corporate Governance Report 277 11.4. STOCK BROKERAGE ACTIVITY Dealing for own account
There are strict rules governing everything that refers to the abstaining from attributing to themselves the same securities execution of operations involving securities dealing for one’s own when they have Customers who have requested them at the account (including family) in the companies specialising in this same or a higher price or, on the other hand, abstaining from type of business activity, such as Banco Português de selling securities which they hold instead of identical stocks in Investimento and BPI Fundos. respect of they have received orders to sell by the Customers at the same or lower price. An example of these rules is the case where securities acquired by Employees and members of the governing bodies of these In parallel, the Banks must inform their Customers of all the companies could only be sold 30 days after purchase, which material aspects that they require in order to form an informed limits the risk of improper involvement in speculative operations. decision about the transaction they intend to enter into, alerting Compliance with this rule can only be waived by the decision of them, above all, of the nature of the inherent risks and the a Director or, when it involves a member of a governing body, by financial consequences that their eventual realisation will imply. deliberation of the Board of Directors taken after submission of a written petition submitted by the interested party. To the present With regard to the provision of portfolio management services, date, no member of a governing body has ever requested the the Banks and the Investment Fund Management Companies Board of Directors to waive compliance with this rule. must ensure that their Customers are informed about the risk level to wich they are subjected, the degree of discretion granted In general terms, it is important to stress the obligation imposed to the management entity and all the commissions and other on all the Group’s Employees and Directors to communicate expenses they will be charged. within 24 hours to management, all the operations realised involving securities (excluding bonds issued by entities with 11.5 COMBAT AGAINST TERRORISM AND MONEY sovereign or equivalent risk), except in the case where the LAUNDERING Group’s stockbroking channels have been used (which is In terms of standards promulgated at both national and tantamount to communication of the operation for this purpose). Community level and with a view to preventing the use of the In the case of Employees involved in stockbroking activity, use of financial system for money-laundering purposes, the Group’s the Group’s stockbroking channels is compulsory. Banks are obliged to communicate to the relevant authorities the realisation of operations which arouse suspicions in this domain. Acting for the account of Customers Employees of the BPI Group’s Banks which are involved in stock In this context, Bank Employees must inform their respective broking activity are bound to the duties laid down in the code of superiors and the Human Resources Division about operations conduct of the Associação Portuguesa de Bancos (Portuguese realised and/or to be realised which, by their nature, amount or Association of Banks) which provides that they must, in the characteristics, may indicate the use of funds derived from illicit execution of any operations entrusted to them, serve their activities. Customers with diligence, loyalty and discretion, namely: It competes to Executive Committee and respective Division,
carrying out the transactions with speed and upon the best backed by the Internal Audit Division, to analyse any conditions afforded by the market; occurrences and give the adequate pursuing to them, as well as to take the necessary measures to prevent the BPI Group’s
abstaining from carrying out and inciting their Customers to involvement in operations associated with money laundering. The effect repeated operations of securities purchases and sales, Audit and Internal Control Committee is, systematically, when these operations are not justified and have as the only or informed of the evolution of the occurrences and its main aim the charging of corresponding commissions or any consequences. other objective that is alien to the Customer’s interest;
278 Banco BPI | Annual Report 2003 11.6. PREVENTION OF INSIDER TRADING Employees and Directors who, during the exercise of their In order to strengthen the measures aimed at averting situations functions, obtain information which has not been made public of abuse arising from the possession of privileged information, and which could influence prices on any market, are bound by a BPI also pursues a policy of: strict duty of secrecy, and must abstain from carrying out any transactions in the securities involved until such information disclosing results on the same day the Board of Directors becomes public. approves them;
In terms of Banco BPI’s and Banco Português de Investimento’s waiting till the close of the stock exchange session before code of conduct, the members of Management or others with a disclosing important facts; professional category on a par with or above a Manager, as well as those Employees involved in the preparation of the annual informing the CMVM and placing on the Investor Relations site report and accounts or the issue of shares or securities the presentations made at the «BPI’s Annual Conference with convertible into shares, are prohibited from dealing in Banco BPI Analysts and Investors», the last two of which the Group’s shares, as well as in securities convertible into shares or those strategic objectives were analysed and revised. which confer such rights: 11.7. BUSINESS DEALINGS BETWEEN BPI AND MEMBERS a) in the period falling between the 15th day before the end of OF THE BOARD OF DIRECTORS, THE AUDIT BOARD, each quarter or each financial year, and the day the THE HOLDERS OF QUALIFIED SHAREHOLDINGS OR corresponding results are disclosed, which considering BPI’s COMPANIES BELONGING TO THE GROUP normal practice, means the barring of trading in Banco BPI There were no business dealings or operations in 2003 between shares in approximately half the stock exchange sessions in the company on the one hand, and the members of the Board of the year; Directors, the audit Board, the holders of qualified shareholdings or Group companies, on the other, which were materially relevant b) in the period falling between the decision of BPI’s and cumulatively, which were carried out other than under management to propose the issue of shares representing its market conditions (applicable to similar operations) or beyond share capital or of securities convertible into shares or those the scope of the bank's normal day-to-day business operations. which confer such rights, and the respective public announcement.
Banco BPI and its Directors are also bound by strict communication duties imposed by law and by the CMVM’s Regulations, such as the obligation to within a period of 7 business days, the first-mentioned have to inform the second- -mentioned which must then inform the CMVM, of any operations realised in Banco BPI shares.
Annexes | The BPI Group’s Corporate Governance Report 279 12. Communication with the market
12.1 PRINCIPLES GOVERNING THE DISCLOSURE OF FINANCIAL INFORMATION AND OTHER IMPORTANT FACTS
Principles underlying the disclosure of financial information and other important facts
Transparency By supplying the market all relevant information that allows the formation of substantiated judgement about the evolution of activity and the results achieved, as well as the prospects for growth, earnings and existing risks; Consistency In the maintenance of the criteria used in the provision of information and clarification of the motives underlying changes thereto, when they occur, so as to ensure the comparability of the information between the reporting periods; Simplicity Through the use of plain language, in the use of explanatory notes for complex issues and in the inclusion of a glossary and formulary in the Annual Report; Availability In the adoption of a proactive, open and innovative stance in communication with the market;
Materiality In the disclosure of all the information which is relevant and in the attribution to each piece of information a degree of visibility and detail commensurate with its importance; Initiative In the adoption of communication of practices and the provision of information which, although not binding, are appreciated by the market.
12.2. INVESTOR RELATIONS DIVISION Concept and responsibilities Banco BPI attaches special importance to the maintenance of BPI has been disclosing information every quarter covering its a frank and transparent relationship with financial analysts, activity and the consolidated results since the last quarter of investors, shareholders, authorities, mass media and other 1991. Since it was listed on the stock exchange in 1986, BPI market participants. adopts a policy of commissioning a full-scope external audit when the law requires merely a limited review. Stemming from this permanent preoccupation, BPI set up in 1993 a structure exclusively dedicated to relations with investors In the sphere of advisory support given to the Executive and with the market. The Investor Relations Division reports Committee, we highlight the monitoring of the Banco BPI share directly to Banco BPI's Executive Committee and has as its price in its multiple facets, backing in the direct contact that mission providing the market with accurate, regular, timely and the Executive Committee regularly has with financial analysts unbiased information concerning the BPI Group, with particular and institutional investors (national and foreign), covering both emphasis on information that could have a material impact on conferences and road shows and individual (one-on-one) the Banco BPI share price. meetings.
The Investor Relations Division has as its principal functions As regards this aspect, an important event is the Conference for guaranteeing, to the Authorities and to the market, compliance Investors and Analysts which the Executive Committee has with legal and regulatory reporting obligations to which Banco organised every year since 2001. BPI’s policy is to disclose to BPI is bound, responding to the information needs of investors, the market the information presented at these gatherings, financial analysts and other interested parties, and lending issuing a press release summarising the most relevant aspects support to the Executive Committee in aspects relating to Banco and reproducing the keynote presentations delivered during this BPI's presence on the market as a listed entity. event on the IR website.
Within the scope of the first-mentioned responsibilities, of particular importance is the disclosure of information classified as “relevant fact” or “other communications”, the furnishing of quarterly information concerning the Group's activity and results, and the preparation of the annual and interim reports and accounts.
280 Banco BPI | Annual Report 2003 The Investor Relations Division contact details are frequentes The road shows and the one-on-one presentations / meetings and widely broadcast. All the information of a public nature were attended by the deputy-chairman of the Board of Directors’ regarding the BPI Group can be requested from the Investor Executive Committee, Fernando Ulrich and/or by the Executive Relations Office via the contact page at the site www.ir.bpi.pt, by Committee member responsible for the Investor Relations telephone (22 607 33 37), e-mail ([email protected]), Division, Manuel Ferreira da Silva. fax (22 600 47 38) or by letter (Rua Tenente Valadim, 284, 4100-476 Porto). The Annual Conference for Analysts & Investors was held on 18 March 2003 and was attended by 25 analysts (buy-side and Activity in 2003 sell-side) from 19 investment houses and 13 institutional The Investor Relations Division (Portuguese initials DRI) investors. developed intense activity in 2003. Besides the usual commitments stemming from legal and regulatory reporting 12.3. INTERNET WEBSITE obligations – which include responsibility for the preparation of «Investor Relations» Website – www.ir.bpi.pt Banco BPI’s Annual and Interim Reports (including the present In June 2003, BPI carried out a major overhaul of its site report) and all the documents associated with the quarterly dedicated to the disclosure of information of an institutional disclosure of results – as well as handling regular requests for nature about the Group. This website – previously domiciled at information – by both the market and by the BPI Group’s www.bpi.pt – is now available at the address www.ir.bpi.pt, or, internal personnel – the DRI was involved in: for those people who do not have access to the Internet, at the “Internet Kiosks” located at the greater part of Banco BPI
bank’s presentation in 5 conferences (organised by third branches. parties) in Lisbon, Madrid, Paris and London. The website (available in Portuguese and English) is split into
staging of 4 road shows, sponsored by internationally renowned six principal sections which cover – inter alia – the following brokers, held in London and in the Scandinavian region; subjects:
realisation of more than 40 one-on-one meetings / presentations.
BPI Group Financial information Shareholders Banco BPI Share Debt News and Events
History Indicators Shareholder structure Indicators Issued debt Announcements Executive Management Results Return Calculator Charts and Quotations Rating News Corporate Governance Reports and Accounts Dividends Analysts’ coverage Calendar Strategy Capital Transaction channels Presentations Identity General Meetings Social Investment
Amongst the website’s more than 200 contents / functionalities, section about «debt» containing summary files and supporting the following merit special reference: documentation relating to the main public issues of subordinated senior debt and preference shares;
interactive simulator for calculating the total return (i.e.
assuming the reinvestment in dividends) on the investment in interactive charts, including benchmarking with the market. Banco BPI shares;
extensive financial information that is completely updated four times a year on the actual day results are released;
Annexes | The BPI Group’s Corporate Governance Report 281 All the information of an institutional nature which is public and In the disclosure of Banco BPI’s 2003 consolidated results material is as a rule published on the website. For the most approximately 650 emails were sent by the Investor Relations significant events, such as the Shareholders’ General Meeting, Division. These messages were sent to persons or entities who the payment of dividends and the quarterly disclosure of results, expressly indicated their wish to be included in BPI’s mailing specific pages (portals) are also created for disclosing list. The DRI does not resort to spamming (the practice of information and giving support for such events. sending unsolicited emails) and periodically reviews its base of contacts with a view to eliminating inactive addresses or Users of the website also have the opportunity to register for and recipients. receive a daily email summarising the behaviour of Banco BPI shares on the stock exchange, an alert service whenever the Generally speaking, all the documents issued in paper form share attains a predetermined percentage and news or new (including preparatory documents for the General Meetings) are contents published on the site. The subscribers of these available for dispatch in electronic format upon request. “mailing lists” can cancel their subscription at any moment by simply following the links appearing at the bottom of each email 12.4. REPRESENTATIVE FOR MARKET RELATIONS for this purpose. Mr. Rui de Faria Lélis – Director of Banco Português de Investimento – is Banco BPI representative for Market Relations. The Investor Relations website complies fully with the CMVM’s recommendations about the use of the Internet as a means of disclosing information of an institutional nature.
In 2003 the IR site recorded a monthly average of 181 thousand pages views and 12.4 thousand visits.
Electronic mail The announcements of important facts and other communications, besides being published on the Investor Relations site and on the CMVM’s information channel, are also sent by electronic mail to the supervision authorities, the media, analysts, as well as to all the institutional investors or to those individuals who expressly request these.
282 Banco BPI | Annual Report 2003 13. Banco BPI Share
13.1. SHAREHOLDER RETURN Banco BPI shares registered a gain of 33.9% in 2003, In the chapter entitled “Banco BPI Shares”, a detailed account outstripping the market’s performance by an expressive margin. is presented of the stock market behaviour of Banco BPI shares, Indeed, the equities market posted a rise of 15.8% in Portugal1 which includes figures relating to earnings per share, dividends and 13.7% in Europe2, while the European banking sector paid, stock prices, shareholders' returns, liquidity data and stock recorded a gain of 21.6%3. The return on investment (ROI) in market capitalisation and market appreciation indicators for the BPI shares – which takes into consideration the share’s stock last five years. These historical series have been adjusted for market appreciation and assumes the reinvestment of dividends events. in new BPI shares – was situated at 38.5% in 2003. 13.2. TREND IN BANCO BPI'S SHARE AND COMMUNICATION OF IMPORTANT FACTS TO THE MARKET The chart below presents the behaviour of Banco BPI shares in 2003 and the communication to the market of important facts and other communications. Trend in Banco BPI’s share price in 2003 Communication of important facts to the market
€ 1 2 34 5/6/7 8 910 11 12 13 14 15 16 17 3.10 Annual variation 2.92 2.90 +33.9%
2.70
2.50
2.30 2.18
2.10
1.90 January February March April May June July August September October November December
Communication of important facts to the market No. Date of communication 1st stock exchange session Details to the market after communication 1 03 Feb 2003 04 Feb 2003 Announcement of Banco BPI’s consolidated results in 2002 2 21 Feb 2003 21 Feb 2003 Date of the attribution of shares and options under the RVA scheme – (Programa de Remuneração Variável em Acções) 3 10 Mar 2003 11 Mar 2003 Notice convening SGM to be held on 10 April 2003 4 17 Mar 2003 18 Mar 2003 Revision of the operating objectives for 2003-4 announced at the annual conference with analysts and investors 5 14 Apr 2003 15 Apr 2003 Payment of dividends in respect of 2002 financial year 6 14 Apr 2003 15 Apr 2003 Results of the voting at the SGM held on 10 April 2003 7 15 Apr 2003 16 Apr 2003 BPI Pensões informs the market that it owns 2.32% of Banco BPI’s capital 8 24 Apr 2003 28 Apr 2003 Disclosure (release) of the BPI Group’s consolidated results for the 1st quarter of 2003 9 01 Jul 2003 02 Jul 2003 Banco BPI reaches agreement on the sale of the equity interest in Banc Post 10 10 Jul 2003 11 Jul 2003 Banco BPI and Modelo Continente, SGPS inform about the remodelling of the collaboration arrangement relating to the Crédito Universo Card 11 30 Jul 2003 31 Jul 2003 Announcement of Banco BPI’s consolidated results relating to the 1st half of 2003 12 23 Sep 2003 24 Sep 2003 Joint announcement referring to Auto-Estradas do Atlântico 13 29 Sep 2003 30 Sep 2003 Integration of Crediuniverso into Banco BPI 14 23 Oct 2003 24 Oct 2003 Announcement of Banco BPI’s consolidated results relating to the third quarter of 2003 15 31 Oct 2003 03 Nov 2003 Transfer amongst affiliates of the position held by “La Caixa” in Banco BPI’s capital 16 17 Nov 2003 18 Nov 2003 BPI raises position in SIC to 41.4% 17 03 Dez 2003 04 Dez 2003 Change in the Chairmanship of Banco BPI’s Executive Committee Note: BPI adheres to a policy of disclosing important facts after the closing of the day’s stock exchange session, with the result that any possible effect on share prices is only felt in the next session.
1) Taking into consideration the trend in the PSI-20 index 2) Based on the evolution of the Dow Jones STOXX 600 index. 3) Taking as the reference the Dow Jones Europe STOXX Bank index.
Annexes | The BPI Group’s Corporate Governance Report 283 14. Dividend Policy
The essential elements of the BPI Group's dividend policy are: In the table «Principal indicators of Banco BPI shares» included in the chapter “BPI Shares” of the Directors' Report, it is
the Group's consolidated net profit serves as the basis for possible to find information relating to the amount of earnings calculating the dividend payment; distributed, the pay-out ratio, the dividend per share and the dividend yield of the last 5 years. On the other hand, the
maintenance of a historical pay-out of not less than 30%, www.ir.bpi.pt site has a section totally devoted to dividends while retaining earnings that ensure the availability of the which contains a complete history (since BPI’s creation) of financial resources required for the Group's growth; information relating to this topic.
fixing the dividend per share in adjusted terms by taking into account capital increases (in cash or by the incorporation of reserves) and stock splits.
284 Banco BPI | Annual Report 2003 APPENDIX OF THE BPI GROUP’S CORPORATE GOVERNANCE REPORT
MANAGEMENT OR SUPERVISORY POSITIONS OCCUPIED BY MEMBERS Banque Privée (Suisse), Iberclear e da Bolsas y Mercados Españoles – OF BANCO BPI'S BOARD OF DIRECTORS IN OTHER COMPANIES Sociedad Holding de Mercados y Sistemas Financieros, S.A. He is a member Artur Santos Silva, 62 years of age, has been exercising executive functions of the Executive Committee and of the Board of Directors of Gas Natural at the BPI Group for 22 years. He is Chairman of the Board of Directors of SDG, S.A. Banco Português de Investimento, S.A., of Banco de Fomento, SARL, of BPI Madeira, SGPS, Unipessoal, S.A. and of Inter-Risco – Sociedade de Capital Isidro Fainé Casas, 61 years of age. He is a Director-General of the Caixa de de Risco, S.A. He is a Director of Banco BPI Cayman, Ltd. and of Viacer – Ahorros y Pensiones de Barcelona “la Caixa”. He is Chairman of Abertis Sociedade Gestora de Participações Sociais, Lda. Infraestructuras, S.A. He is Deputy-Chairman of Telefónica, S.A. He is a member of the Board of Directors of Caixa Holding, S.A. and CaixaBank Carlos da Câmara Pestana, 72 years of age. He is Deputy-Chairman of the France. Board of Directors of Banco Itaú Europa, S.A. (Portugal). He is a member of the Board of Directors of Banco Itaú, S.A. (Brasil) and Itaúsa Portugal, João Sanguinetti Talone, 80 years of age. He does not exercise management SGPS, S.A. He is a member of the Management Board of Itaúsa Madeira – or supervisory functions at other companies. Investimentos, SGPS, Lda., of IPI – Itaúsa Portugal Investimentos, SGPS, Lda, of Itaú Europa, SGPS, Lda. and of Cashedge – Consultores e Serviços, José Alberto Ferreira Pena do Amaral, 48 years of age, exercises executive Lda. functions at the BPI Group for 17 years. He is Chairman of the Board of Directors of Eurolocação – Comécio e Aluguer de Veículos e Equipamentos, Fernando Ulrich, 51 years of age, has been exercising executive functions at S.A. He is a member of the Board of Directors of BPI Madeira, SGPS, the BPI Group for 20 years. He is Deputy-Chairman of the Board of Directors Unipessoal, S.A. and Companhia de Seguros Allianz Portugal, S.A. He is a of Banco Português de Investimento, S.A. he is Chairman of the Board of Director of BPI Locação de Equipamentos, Lda. and BPI Rent – Comércio e Directors of BPI Fundos – Gestão de Fundos de Investimento Mobiliário, Aluguer de Bens, Lda. S.A., of BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A., of BPI Vida – Companhia de Seguros de Vida, S.A., of BPI Capital Finance Klaus Dührkop, 50 years of age. He is Executive Deputy-Chairman of Allianz, Limited, of BPI Global Investment Fund Management Company, S.A. and of AG. He is a member of the Board of Directors of RAS (Italy), Lloyd Adriático Solo – Investimentos em Comunicação, SGPS, S.A. He is a member of the (Italy), Allianz Subalpina (Italy), Companhia de Seguros Allianz Portugal, Board of Directors of Banco de Fomento, SARL, of BPI Madeira, SGPS, S.A., Allianz Greece, Assurances Federale (France) and Koc Allianz (Turkey). Unipessoal, S.A., of Companhia de Seguros Allianz Portugal, S.A. and of Inter-Risco – Sociedade de Capital de Risco, S.A. He is a Director of Banco Manuel Ferreira da Silva, 46 years of age, exercises executive functions at BPI Cayman, Ltd. He is a non-executive member of the Board of Directors of the BPI Group for 20 years. He is a member of the Board of Directors of Portugal Telecom, S.A. and PT Multimédia, S.A. Banco Português de Investimento, S.A., Inter-Risco – Sociedade de Capital de Risco, S.A. and BPI Madeira, SGPS, Unipessoal, S.A. Ruy Octávio Matos de Carvalho, 71 years of age. He is Chairman of the Supervisory Board of EFACEC Capital, SGPS, S.A. He is Deputy-Chairman of Manuel Soares de Oliveira Violas, 45 years of age. He is Chairman of the Yura Internacional and Vittoria Capital. He is a Member of the Board of Board of Directors of Violas – SGPS, S.A., Cotesi – Companhia de Têxteis Directors of João Marques Pinto – Investimentos Imobiliários, S.A. Sintéticos, S.A., Solverde – Sociedade de Investimentos Turísticos da Costa Verde, S.A., Sociedade Imobiliária da Praia da Rocha, S.A., I.I.I. – Alfredo Costa Rezende de Almeida, 69 years of age. He is Chairman of the Investimentos Industriais e Imobiliários, S.A., Corfi – Organizações Board of Directors of ARCO TÊXTEIS – Empresa Industrial de Santo Tirso, Industriais Têxteis Manuel de Oliveira Violas, S.A. and CLIP – Colégio Luso S.A. and ARCO FIO – Fiação, S.A. He is Deputy-Chairman of the Board of Internacional do Porto, S.A. Directors of ARCO TINTO – Tinturaria, S.A. He is a member of the Board of Directors of Fábrica do Arco – Recursos Energisticos, S.A. He is an owner- Maria Celeste Hagatong, 51 years of age, exercises executive functions at the -Director of Casa de Ardias – Sociedade Agrícola e Comercial, Lda. BPI Group for 18 years. She is a member of the Board of Directors of BPI Madeira, SGPS, Unipessoal, S.A.. She is a non-executive member of the António Domingues, 47 years of age, has been exercising executive functions Board of Directors of Banco Português de Investimento, S.A. and CVP – at the BPI Group for 14 years. He is a member of the Board of Directors of Sociedade de Gestão Hospitalar, S.A. Banco de Fomento, SARL, BCI – Banco Comercial e de Investimentos, SARL (Mozambique), BPI Capital Finance, Limited, BPI Madeira, SGPS, Riunione Adriática di Sicurtá, representada por Diethart Breipohl, 64 years of Unipessoal, S.A., Digitmarket – Sistemas de Informação, S.A., SIBS – age. He is a member of the Supervisory Board of Allianz AG (München), Sociedade Interbancária de Serviços, S.A. and Unicre – Cartão Internacional Beiersdorf AG (Hamburg), Continental AG (Hannover), Karstad Quelle de Crédito, S.A. (Essen), Mg Tecnologies AG (Frankfurt) and KM Europa Metal AG (Osnabrück). He is a member of the Board of Directors of Crédit Lyonnais António Farinha Morais, 52 years of age, has been exercising executive (Paris), Assurances Gérales de France AGF (Paris), Banco Popular Español functions at the BPI Group since the acquisiton of the former BFE in 1996. (Madrid) and Euler & Hermes (Paris). Previously, he worked at BFE since 1978. He is a member of the Board of Directors of BPI Fundos – Gestão de Fundos de Investimento Mobiliário, S.A. Roberto Egydio Setúbal, 49 years of age. He is Deputy-Chairman of the and BPI Global Investment Fund Management Company, S.A. Board of Directors, Director Chairman, Director-General and member of the International Consultative Committee of Banco Itaú Holding Financeira, S.A. Armando Costa Leite de Pinho, 69 years of age. He is Chairman of the Board He is Director Chairman and Director-General of Banco Itaú, S.A. He is of Directors of Arsopi – Indústrias Metalúrgicas Arlindo S. Pinho, S.A., Arsopi Executive Director and Deputy-Chairman of Itaúsa – Investimentos Itaú, S.A. – Holding, SGPS, S.A., A.P. Invest, SGPS, S.A., ROE, SGPS, S.A. and He is Chairman of the Board of Directors and Director Chairman of Banco Security, SGPS, S.A. He is Deputy-Chairman of the Board of Directors of Bemge, S.A., Banco Beg, S.A., Banco Banestado, S.A., Itaú Banco de Unicer – Bebidas de Portugal, SGPS, S.A. He is a member of the Board of Investimento, S.A., CIA Itauleasing de Arrendamento Mercantil, Directors of Plurimodos – Sociedade Imobiliária, S.A., Pluricasas – Sociedade Investimentos Bemge, S.A., Itauint Participações Internacionais, S.A. and Imobiliária, S.A. and Plurimodus Turismo, S.A. He is a Director of Arsopi – Itaú Directora de Consórcios, Lda. He is Director Chairman of Banco Banerj, Thermal, Equipamentos Téisrmicos, Lda., Tecnocon – Tecnologia e Sistemas S.A., Itaú Capitalização, S.A., Itaú Previdência e Seguros, S.A., Itaucard de Controle, Lda., Equitrade – Equipamentos e Tecnologia Industrial, Lda., Financeira, S.A. – Crédito, Financiamento e Investimento, Banco Itaú Acinox – Acessórios Inoxidáveis, Lda., Viacer – Sociedade Gestora de Europa, S.A., Itaú Bank, Ltd. and Banco Itaú Buen Ayre, S.A. He is a Participações Sociais, Lda. and IPA – Imobiliária Pinhos & Antunes, Lda. Director of Itaúsa Portugal, SGPS, S.A.
Caixa Holding, S.A. Sociedad Unipersonal – representada por Fernando Tomaz Jervell, 59 years of age. He is Chairman of the Management Board of Ramirez Mazarredo, 50 years of age. He is Deputy Director-General of the Auto-Sueco, Lda. He is Chairman of the Board of Directors of Norbase, Caja de Ahorros y Pensiones de Barcelona “La Caixa”. He is Deputy- SGPS, S.A., Auto-Sueco (Angola), SARL, Auto-Sueco (Minho), S.A., Soma, -Chairman of the Board of Directors of MEFF Sociedad Holding de Productos S.A., Biosafe, S.A. and Vellar, SGPS, S.A. He is a member of the Financieros Derivados. He is a member of the Board of Directors of SocietHe Management Board of Auto-Sueco (Coimbra), Lda. is Monegasque de Banque Privée, Bolsa de Barcelona, E-lacaixa, Caixabank
Annexes | The BPI Group’s Corporate Governance Report 285
Annexes Correspondence between CMVM's recommendations and regulations concerning corporate governance matters and the BPI's Group Corporate Governance Report Nature Details Chapter Regulations Recommendation
0. DECLARATION OF COMPLIANCE Detailed indication of the CMVM's recommendations on corporate governance not adopted 0. I. DISCLOSURE OF INFORMATION Organisation charts relating to the division of responsibilites between the various bodies and company departments in the business decision-making process. 4. List of specific commissions created at the company with indication of their composition and functions 3.7. Description of the system of risk control implemented at the company 3.5. and 5. Description of the issuer's share price behaviour 13.1. Description of the dividend distribution policy 13.2. Description of the main characteristics of the share and options attribution plans adopted 7.3. Business dealings between the company on the one hand, and the members of its governing bodies , holders of qualified shareholdings or Group companies, on the other 11.7. Investor Support Office - functions, type of information available and access routes 12.2. Company site on the Internet 12.3. Identification of the market relations representative 12.4. Indication of the composition of the remuneration committee 3.7. Indication of the annual remuneration paid to the auditors and their network 6.1. Description of the means of safeguarding the auditor's independence 6.2. II. EXERCISE OF VOTING RIGHTS AND REPRESENTATION OF SHAREHOLDERS Existence of statutory rules on voting rights, namely, those that exclude the right to vote by correspondence 9.1. Existence of a model for the exercising of vote by correspondence 9.4. Possibility of exercising voting rights be electronic means 9.5. Prior period required for the deposit or blockage of shares for participation at general meetings 9.1. Requirement of a period of time elapsing between the receipt of the voting paper by correspondence and the holding of the general meeting 9.4. Number of shares which correspond to one vote 9.2. III. CORPORATE RULES Existence of codes of conduct for the company's bodies or other internal regulations 3.3. and 1.1. Description of the internal procedures for the control of risk in the company's activity 3.5. and 5. Measures capable of interfering in the success of takeover bids (limiting the exercise of voting rights, restrictions on the transferability of shares, shareholder agreements, etc) 8. IV. MANAGEMENT BODY Management body: distinction between executive and non-executive members and independent and non-independent members 3.3. Functions exercised by the members of the management body at other companies Appendix Existence of an executive commission or other commissions with management responsibility, identifying the powers and responsibilities attributed to these committees and their composition 3.4. Delimitation of responsibilities between the Chairman of the management body and the Chairman of the executive committee 3.4. List of issues the executive committee is barred from dealing with 3.4. Information to the members of the management body relating to matters dealt with and decisions taken by the executive committee 3.3. List of disqualifications defined internally by the management body 7.2. Number of meetings of the management body during the year in question 3.3. Description of remuneration policy, including in particular the means for aligning Directors' interest with those of the company. 7.1. Indication of remuneration earned, distinguishing between executive and non-executive directors and the variable from the fixed portion 7.2. Existence of internal control committees with responsibilities in the assessment of the company's structure and governance. 3.9. Directors' remuneration: ways of aligning directors' interest with those of the Shareholders and disclosure in individual terms 0., 7.1, 7.3. Independence of the members of the remuneration committee in relation to the members of the management body 3.7. Motion submitted to the General Meeting relating to the approval of the share incentive and options scheme must contain all the details needed for a proper appraisal of the scheme. 7.3. Institutional investors: diligent, efficient and critical use of the rights inherent in the securities of which they are the holders or whose management has been entrusted to them 10.
288 Banco BPI | Annual Report 2003 Publications, communications and events in 2004
Important dates Investor Relations Division channels CMVM Web site Legal / regulatory BPI 2004 calendar Web site E-mail Telephone In person or postal Mail www.cmvm.pt timetable (expected dates) (www.ir.bpi.pt) [email protected] 22 607 33 37 Rua Tenente Valadim, 284, 4100-476 Porto Available for sending Brochure 21 Apr. 04 Available on request – Report Publication up to (contacts page) Available on request and 30 days after the AGM Available on request or by PDF 20 Apr. 04 accounts: registration on the mailing list Available 2003 RAO1 – Mai. 04 – – – Available for sending Brochure 21 Apr. 04 Available on request – BPI Group (contacts page) Publication up to Available on request Corporate 30 days after the AGM Available on request or by PDF 20 Apr. 04 Governance: registration on the mailing list Available 2003 RGO2 – Mai. 04 – – Available for sending Relatório Brochure Available on request – Publication up until (contacts page) e contas: 15/30 Sep. 04 Available on request 1º semestre 30 September Available on request or by PDF Available de 2004 registration on the mailing list 1st and 3rd quarter: up to Available on request or by Announcement 30 days after the quarter 21 Apr., 21 Jul., 27 Oct. Available Available on request registration on the mailing list end.; 2nd quarter: by 30/Sep Available on request Disclosure Conference of quarterly Available on request 3 21/22 Apr., results Call Available 21/22 Jul., – (deferred) – – 27/28 Oct. Available by 3 – Webcast registration Presentation
Publication up to Notice 19 Mar. 04 AGM preparatory details: 30 days before the AGM Page devoted to the event with: motions, Information - Available at the company's head office Publication 15 or 30 days Specific address for Between 19 Mar. ballot papers, draft phone line about and Banco BPI premises at Motions (depending on the motion) support for the event: – and 5 Apr. proxy letters, etc; the SGM: Largo Jean Monnet, n.º 1 in Lisbon; before the AGM [email protected] available in Portuguese 22 607 33 33 and English - Sent by post to all shareholders GM results – 20 Apr. 04
General Meetings with more than 5 000 shares
Page devoted to 15 days before the AGM 5 Apr. 04 Motion distribution of - News about Dividends dividends containing: sent to subscribers to the Announce- amounts, key dates , mailing list of the IR site; 15 days before payment 21/30 Apr. Contacts available for clarification ment tax information, indicators, etc; - address available Dividends available in Portuguese for clarifications Payment Up until 20 May 2nd week of May and English Events Annual conference Available – May / June (presentation and for analysts and (Announcement) investors announcement) Contacts available for clarification or remittance of information Other institutional Calendar of events – Available presentations available on the IR site
Important facts News sent to subscribers Transmitted to the market on the day they Available to the mailing list Contacts available for clarification or remittance of information become available (including history) Other commu- of the IR site nications Announcements Permanent updating of Available Calendar of At start of each the calendar of events for (past and Contacts available for clarification or remittance of information – half-year institutional events the current financial year future events)
Of other Available for the companies As soon as BPI is informed of the occurrence half-year and in BPI's of the change in the shareholder strcuture financial year capital end dates Of BPI Contacts available for clarification or remittance of information in the capital Up to 3 days after transaction date Available of other
Qualified shareholdings companies 1% of capital since the last Up to 5 days after the transaction date which Other originated the duty to communicate reporting announce- obligations ment – 0.05% of capital in Immediately a single session ransactions in treasury stock T Transactions in Banco BPI shares realised by Up to 7 business days after the transaction – – – members (or appointment) of the Board of Directors Historical prices, Alert for price changes Banco BPI share – Charts, Return and dispatch of a daily – – – calculator, etc session summary Permanent update Information about the Telephone contact News about Debt sent to Address for matters regarding Debt: EMTN programme, for matters subscribers to the mailing "Finance Division - Capital market, Debt; Debt / Rating – preference shares and regarding Debt: list of the IR site Largo Jean Monnet, 1 - 1269-067 Lisbon" [interest on ratings reports 21 310 10 00 debt securities] 5 Apr. 04 Social responsibility Available Contacts available for clarification or remittance of information – – (Annual Report)
News sent to subscribers Institutional news Available – – to the mailing list Contacts available for clarification – (including history) [non-mandatory disclosure] of the IR site
1) RAO – Relatório Anual Online. 2) RGO – Relatório de Governo Online 3) No âmbito da apresentação dos resultados pela Comissão Executiva do Conselho de Administração do Banco BPI.
Annexes | Annexes to The BPI Group’s Corporate Governance Report 289 Calendar1 of the main institutional events for 2004 Date Time Event
29 January 4:30 p.m. Release of 2003 results 29 January 4:30 p.m. Press conference on 2003 activity and results 30 January 11:00 a.m. Conference-call with analysts and investors regarding 2003 results 20 April 11:00 a.m. Shareholders' General Meetings 20 April 4:30 p.m. Publication of Banco BPI2 2003 Annual Report 21 April 4:30 p.m. Release of 2004 first quarter results 21 April 4:30 p.m. Press conference to present 2004 first quarter results 22 April 11:00 a.m. Conference-call for analysts and investors to present 2004 first quarter results 1st half of May - Payment of dividends May / June - BPI's Annual Conference for Analysts and Investors 21 July 4:30 p.m. Release of 2004 first half results 21 / 22 July N.A. Press conference and Conference-call for analysts and investors to present 2004 first half results September - Publication of Banco BPI Interim Report 27 October 4:30 p.m. Release of 2004 third quarter results 27 / 28 October N.A. Press conference and Conference-call for analysts and investors to present 2004 third quarter results 1) The date shown are purely indicative and are subject to alteration. 2) Assuming that the Shareholders approve the Board of Directors' proposal relating to the 2003 Report and Accounts. N.A. - not available.
290 Banco BPI | Annual Report 2003 Trading information
Board of Directors members' shareholdings in Banco BPI, S.A. Shares Options Board of Directors Members Held on Increases Decreases Held on Held on Increases Decreases Held on 31.12.2002 31.12.2003 31.12.2002 31.12.2003 Artur Santos Silva 739 756 66 706 806 462 231 031 432 576 663 607 Carlos da Câmara Pestana 300 000 300 000 Fernando Ulrich 283 047 59 346 342 393 205 530 384 849 590 379 Ruy Octávio Matos de Carvalho 120 092 120 092 Alfredo Costa Rezende de Almeida 1 680 000 1 680 000 Antonio Domingues 45 648 42 991 39 726 48 913 144 067 278 788 422 855 António Farinha Morais 26 291 29 087 10 000 45 378 67 938 157 576 225 514 Armando Costa Leite de Pinho 5 881 962 5 881 962 0 Diethart Breipohl 4 882 4 882 Fernando Ramirez Mazarredo 4 882 4 882 Isidro Fainé Casas 0 0 João Sanguinetti Talone 12 000 12 000 José Alberto Ferreira Pena do Amaral 58 731 22 430 40 000 41 161 68 604 145 455 214 059 Klaus Duhrkop 0 0 Manuel Soares de Oliveira Violas 31 686 31 686 Manuel Ferreira da Silva 37 749 23 365 5 000 56 114 83 147 151 516 234 663 Maria Celeste Hagatong 70 676 31 990 5 000 97 666 82 653 169 697 252 350 Roberto Egydio Setúbal 0 0 Tomaz Jervell 8 541 8 541
ARTUR SANTOS SILVA – On 23 April 2003, acquired, under the RVA 2002 ANTÓNIO FARINHA MORAIS – On 21 March 2003, acquired 4 067 shares that scheme, 66 706 shares at a price of €2.14. he was attributed, under condition precedent in the RVA 2001 scheme, by the price of €2.58. On 21 March 2003, acquired 720 shares that has On 23 April 2003, he was attributed, under the RVA 2002 scheme, subscribed, under the RVA 2001 scheme and under subsequent 432 576 share options. The cost of each option was €0.33 and the price condition, in the capital increase, at a price of €1.75. On 23 April 2003, of the shares to be eventually acquired is €2.14. acquired, under the RVA 2002 scheme, 24 300 shares at a price of €2.14, of which part is under subsequent condition. Sold: on 29 April CARLOS DA CÂMARA PESTANA – Made no transactions. 2003, 5 000 shares at a price of €2.40; and, on 12 June 2003, 5 000 shares at a price of €2.69. IPI – Itaú Portugal Investimentos, SGPS, Lda. acquired: on 13 February 2003, 104 067 shares at a price of €2.08; and, on 25 April 2003, On 21 March 2004 and 2005, he will be transmitted the property of 7 600 000 shares at a price of €2.20. On 31 December 2003, IPI – Itaú 4 065 and 4 065 shares he was attributed under condition precedent in Portugal Investimentos, SGPS, Lda. held 122 323 944 shares. the RVA 2001 scheme. On the same dates, he will be transmitted the property of 720 and 720 shares he subscribed, under the RVA 2001 FERNANDO ULRICH – On 23 April 2003, acquired, under the RVA 2002 scheme, and under condition precedent in the capital increase, at a price scheme, 59 346 shares at a price of €2.14. of €1.75.
On 23 April 2003, he was attributed, under the RVA 2002 scheme, On 23 April 2003, he was attributed, under the RVA 2002 scheme, 384 849 share options. The cost of each option was €0.33 and the price 157 576 share options. The cost of each option was €0.33 and the price of the shares to be eventually acquired is €2.14. of the shares to be eventually acquired is €2.14.
RUY OCTÁVIO MATOS DE CARVALHO – Made no transactions. ARMANDO COSTA LEITE DE PINHO – On 23 April 2003, transmitted to ROE, SGPS, S.A. and Security SGPS, S.A., both companies directly controlled ALFREDO COSTA REZENDE DE ALMEIDA – Made no transactions. by him, 2 484 871 and 2 484 871 shares valorised at €2.29. On 30 May 2003, transmitted to ROE, SGPS, S.A., 788 028 shares valorised at On 31 December 2003, the companies ARCO TÊXTEIS – Empresa €2.41. On 12 September 2003 sold 124 192 shares at a price of Industrial de Santo Tirso, S.A. and ARCO FIO – Fiação, S.A., of which he €2.35. is Chairman of the Board of Directors, and ARCO TINTO – Tinturaria, S.A., of which he is Deputy-Chairman of the Board of Directors, held On 31 December 2003, the companies Arsopi – Indústrias Metalúrgicas 1 888 540, 743 230 and 849 750 shares, respectively. Arlindo S. Pinho, S.A., ROE, SGPS, S.A. and Security, SGPS, S.A., of which he is Chairman of the Board of Directors, held 2 248 271, ANTÓNIO DOMINGUES – On 23 April 2003, acquired, under the RVA 2002 3 397 091 and 2 484 871 shares, respectively. scheme, 42 991 shares at a price of €2.14. On 30 April 2003, sold 39 726 shares at a price of €2.41. DIETHART BREIPOHL – Made no transactions.
On 23 April 2003, he was attributed, under the RVA 2002 scheme, On 31 December 2003, RAS International N.V., which nominated him to 278 788 share options. The cost of each option was €0.33 and the price Banco BPI, S.A.'s Board of Directors, held 65 659 233 shares. of the shares to be eventually acquired is €2.14.
Annexes | Trading information 291 FERNANDO RAMIREZ MAZARREDO – Made no transactions. MARIA CELESTE HAGATONG – On 21 March 2003, acquired 4 944 shares she was attributed under condition precedent in the RVA 2001 scheme, at a On 25 April 2003, Caixa Holding, S.A. Sociedad Unipersonal, which price of €2.58. On 21 March 2003, acquired 877 shares she has nominated him to Banco BPI, S.A.'s Board of Directors acquired subscribed, under condition precedent in the RVA 2001 scheme, in the 7 600 000 shares at a price of €2.20. On 18 June 2003 and on capital increase at a price of €1.75. On 23 April 2003, acquired, under 31 October 2003, Caixa Holding, S.A. Sociedad Unipersonal sold to its the RVA 2002 scheme, 26 169 shares at a price of €2.14. On 7 May 100% owned subsidiary Catalunya de Valores – SGPS, Lda. 1 215 564 2003, sold 5 000 shares at a price of €2.42. and 120 340 815 shares, respectively, at a price of €2.18. On 31 December 2003, this company held 121 556 379 shares. On 21 March 2004 and 2005, she will be transmitted the property of 4 946 and 4 946 shares she was attributed under condition precedent in ISIDRO FAINÉ CASAS – He is Director General of Caja de Ahorros y Pensiones the RVA 2001 scheme. On the same dates, she will be transmitted the de Barcelona (“la Caixa”) which totally controls Caixa Holding, S.A. property of 876 and 876 shares she has subscribed, under the RVA 2001 Sociedad Unipersonal and, through this company, controls Catalunya de scheme, and under condition precedent, in the capital increase at a price Valores – SGPS, Unipersonal, Lda. of €1.75.
Does not hold any shares. On 23 April 2003, she was attributed, under the RVA 2002 scheme, 169 697 share options. The cost of each option was €0.33 and the price JOÃO SANGUINETTI TALONE – Made no transactions. of the shares to be eventually acquired is €2.14.
JOSÉ ALBERTO FERREIRA PENA DO AMARAL – On 23 April 2003, acquired, under ROBERTO EGYDIO SETÚBAL – Does not hold any shares. the RVA 2002 scheme, 22 430 shares at a price of €2.14. On 30 April 2003, sold 20 000 shares at the average price of €2.38. On 12 June TOMAZ JERVELL – Made no transactions. 2003, sold 10 636, 4 364 and 5 000 shares at the prices €2.65, €2.66 and €2.67, respectively. On 31 December 2003, the companies Norsócia, SGPS, S.A. and Auto Maquinaria Tea Aloya, SL, of which he is a member of the Board ofr On 23 April 2003, he was attributed, under the RVA 2002 scheme, Directors, held 6 018 395 and 6 037 256 shares, respectively. 145 455 share options. The cost of each option was €0.33 and the price of the shares to be eventually acquired is €2.14.
KLAUS DÜHRKOP – Does not hold any shares.
MANUEL SOARES DE OLIVEIRA VIOLAS – Made no transactions.
On 31 December 2003, Violas – Sociedade Gestora de Participações Sociais, S.A., held 21 681 062 shares.
MANUEL FERREIRA DA SILVA – On 23 April 2003, acquired, under the RVA 2002 scheme, 23 365 shares at a price of €2.14. On 14 June 2003, sold 5 000 shares at a price of €2.66.
On 23 April 2003, he was attributed, under the RVA 2002 scheme, 151 516 share options. The cost of each option was €0.33 and the price of the shares to be eventually acquired is €2.14.
On 31 December 2003, his wife Maria do Carmo Guedes de Oliveira held: 37 705 shares, of which he was attributed 13 085 on 23 April 2003 under the RVA 2002 scheme; and 129 990 share options, of which he was attributed 84 849 on 23 April 2003 under the RVA 2002 scheme.
292 Banco BPI | Annual Report 2003 The RVA (i.and. the Portuguese initials for the share incentive The shares attributed under the RVA are available to the and options programme) is a scheme under which a portion of beneficiary in a gradual manner: 25% at the time awarded, and the variable remuneration of BPI Group Executive Directors and 25% at the end of each one of the following three years. Employees is attributed in the form of BPI shares and share options. The shares awarded under the 2001 RVA were subject to a condition subsequent (transfer of title was fully effected on the The RVA encompasses Banco BPI’s Executive Committee and date of attribution) or a condition precedent (transfer of title is the Board of Directors of Banco Português de Investimento, as effected as and when the shares become available), in well as all those Employees whose variable remuneration is equal accordance with the beneficiary’s option. The shares awarded to or exceeds EUR 2 500. under the 2002 RVA and the 2003 RVA was subject to a condition subsequent. The portion of the individual variable remuneration which The share purchase options are exercisable between the first corresponds to the RVA varied between 10% and 50%, the and fifth years commencing on the date of attribution. relevant percentage increasing in accordance with the Director’s or Employee’s level of responsibility: The Directors and Employees who have been covered by the RVA and who are working for BPI Group companies can apply Chairman and Deputy-Chairman of Banco BPI’s Executive Committee 50% for a loan for the sole purpose of acquiring Banco BPI shares Other Directors of Banco BPI’s Executive Committee 40% resulting from the exercise of the options awarded under this Other Directors of Banco Português de Investimento 35% programme. The individual loans granted under this credit line Central Managers 30% satisfy amongst others the following rules: Coordinating Managers 25% Managers 20% amount available: up to 75% of the amount corresponding to Assistant Managers and Sub managers 15% the market value of the shares. Other employees 10%
period: four years starting on the date the loan is used. The RVA contemplates two modes: the attribution of BPI shares and the attribution of options to purchase BPI shares. In the interest rate: Euribor 12 months, plus a spread of 0.75 2001 RVA and 2002 RVA , each mode represented roughly half percentage points. of the individual attribution; in the 2003 RVA, the Director or Employee can opt, in the apportionment of shares/options, from security: lien over the shares acquired as a consequence of amongst the following proportions: 50%/50%, 75%/25% or the exercise of the respective options. 100%/0%.
Audit Board members' shareholdings in Banco BPI, S.A. Shares Audit Board Members Held on Increases Decreases Held on 31.12.2002 31.12.2003 Jorge Figueiredo Dias 00 José Ferreira Amorim 4 980 000 4 980 000 Magalhães, Neves & Associados 00
JORGE FIGUEIREDO DIAS – Does not hold any shares.
JOSÉ FERREIRA AMORIM – Made no transactions.
MAGALHÃES, NEVES & ASSOCIADOS – Does not hold any shares.
Annexes | Trading information 293 BANCO BPI, S.A.
Sociedade com o capital aberto ao investimento do público
Pessoa Colectiva n.º 501 214 534
Matrícula na Conservatória do Registo Comercial do Porto, sob o n.º 35 619
Sede: Rua Tenente Valadim, n.º 284, 4100-476 Porto, PORTUGAL
Capital Social: 760 000 000 euros