Banco BPI 2002
Report
Index
REPORT Leading business indicators 4 Introduction 6 Governing bodies 11 Historical milestones 12 The identity of BPI 14 The BPI brand 15 Corporate governance at the BPI Group 16 Social investment 18 Financial and business structure 20 Distribution channels 21 Human resources 22 Technology 25 Operations 35 Highlights of 2002 38 Background to operations 40 Domestic Commercial Banking 48 International Commercial Banking 62 Insurance 65 Asset Management 66 Investment Banking 72 Private Equity 75 Financial review 77 Risk management 108 Rating 120 BPI shares 122 Shareholders 125 Shareholders value creation 126 Final acknowledgements 127 Proposed appropriation of net profit 128
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Consolidated financial statements 129 Notes to the consolidated financial statements 137 Legal certification of accounts and audit report 195 Auditor's report 197 Report and opinion of the Audit Board 198
ANNEXES The BPI Group's Corporate Governance Report 201 Trading information 223
Appendices Definitions, acronyms and abbreviations 226 Glossary 228 Formulary 230 Methodological notes 231 Index of figures, tables, charts and "boxes" 232 General index 234 Miscellaneous information 237 Leading business indicators
(Consolidated figures in millions of euro, except where indicated otherwise)
1998 1999 2000 2001 2002 ∆% 01 / 02 Total assets 15 579.9 16 550.5 21 907.4 24 792.9 25 669.1 3.5% Total assets plus disintermediation 19 885.2 20 758.0 26 335.8 29 127.7 29 605.6 1.6% Shareholders’ equity 566.4 650.7 930.0 908.7 1 168.9 28.6% Loans to Customers (gross) and guarantees 9 903.6 12 023.4 16 542.8 18 768.9 19 738.0 5.2% Customer deposits 9 053.6 9 458.5 10 463.7 11 494.3 12 224.6 6.4% Total Customer resources 13 909.8 14 806.0 16 507.8 17 402.9 17 647.5 1.4% Assets under management 7 009 7 249 7 639 7 545 7 513 (0.4%) Operating cash flow 227.2 207.2 278.6 327.0 310.4 (5.1%) Net operating income 159.2 139.6 152.5 190.6 192.1 0.7% Net profit 137.0 124.8 152.4 133.3 140.1 5.1% Cash flow after taxation 205.0 192.3 278.5 269.6 258.4 (4.2%) Return on average total assets (ROA) 0.8% 0.8% 0.8% 0.6% 0.6%
Return on Shareholders’ equity (ROE) 25.6% 22.4% 21.6% 14.7% 13.5% Cost-to-income1 61.7% 65.0% 60.7% 58.1% 58.7% Efficiency ratio2 74.5% 79.6% 71.9% 68.3% 67.1% Ratio of own funds requirements3 11.1% 11.6% 9.8% 9.2% 10.2% Tier I3 6.0% 6.8% 6.7% 5.9% 7.3% Loans in arrears for more than 90 days as % of Customer loans 1.8% 1.4% 1.0% 0.9% 1.3% Provisioning cover for arrear loans 141.0% 157.3% 194.2% 210.0% 153.0% Cover of pension obligations4 101.7% 102.4% 101.6% 100.0% 100.1% Data per share adjusted (euro)5 Cash flow after taxation 0.35 0.32 0.45 0.40 0.36 (10.7%) Net profit 0.24 0.21 0.24 0.20 0.19 (2.0%) Dividend 0.07 0.09 0.09 0.08 0.08 (2.4%) Book value 0.97 1.05 1.37 1.34 1.54 14.9% Weighted average no. of shares (in millions)5 584.0 603.8 626.3 679.0 728.3 7.3% Closing price (euro)5 3.86 3.86 3.18 2.15 2.18 1.5% Total Shareholder return 31.2% 2.5% (16.0%) (30.4%) 3.0% Stock market capitalisation at year end 2 252.7 2 390.0 2 156.4 1 459.1 1 656.8 13.5%
Dividend yield 2.5% 2.4% 2.4% 2.7% 3.9% Individuals and small businesses distribution network (retail branches)6 487 592 592 584 564 (3.4%) Corporate and institutionals centres network7 53 54 63 63 61 (3.2%)
BPI Group staff complement (number)8 7 695 8 239 8 359 8 106 7 576 (6.5%)
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 (508 in 2001 and 483 in 2002), housing shops, in-store branches, investment centres and automatic shops. 7) Distribution network specialising in serving medium-sized companies (44 Corporate Centres), large companies (7 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 2002 GROWTH, PROFITABILITY, STRENGTH AND VALUE
Bi.€ Bi.€ Net total assets plus 32 20 Loans and Customer disintermediation resources 24 15
Net total assets1 Disintermediation2 16 10 Total Customer resources1 Loans to Customers 1) Corrected for duplication of 8 5 balances. 2) Off-balance sheet Customer 1) Corrected for duplication of resources. 0 0 balances. 9899 0001 02 9899 0001 02
M.€ € Net profit 160 0.28 Net profit per share
120 0.21
80 0.14
40 0.07
0 0.00 9899 0001 02 9899 0001 02
% Bi.€ Quality of loan portfolio 6 2.0 Own funds and own funds requirements
4 1.5
Ratio of loans in arrears1 Loans in arrears1 net of 2 1.0 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 9899 0001 02 9899 0001 02
Bi.€ Stock market capitalisation 2.8 BPI Ratings Issuer A+ Fitch Ratings Stable 13 Jan. 03* 2.1
A2 Moody’s 1.4 Stable 7 Jan. 03*
0.7 A- Standard & Poor’s Stable 20 Dec. 02* Long-term rating notations * last revision 0 9899 0001 02
Figure 1
Report | Leading business indicators 5 Introduction
ON THE RIGHT COURSE
The BPI Group’s performance in 2002, marked by an important reorganisation of its system of governance, confirms the satisfactory execution of the strategy mapped out for the three-year period 2002-2004. This approach is based on a programme of selective and more efficient growth, not only from the viewpoint of operating costs, but also in terms of capital allocation. In 2002, BPI managed to surpass the targets set for cost containment, while simultaneously achieving robust growth in its domestic activity. It continued to present risk and financial base indicators within the best in the Portuguese banking system. Net profit posted a rise of 5%, in spite of the pressure exerted on net interest income by the decline in interest rates.
The objectives for 2003 and 2004 have been revised in the light of the predictable impact of the negative economic environment on the growth in demand and GDP. The new goals envisage nil growth in both years in administrative overheads, defined as the sum of personnel costs, other administrative costs and depreciation and amortisation. Considering that these items had already registered a decline in 2002 of 2.8%, the revised objectives constitute an even more demanding challenge. On the other side, the target set for gross operating income from banking (excluding profits from financial operations) remains unaltered, that is, this item is still projected to rise at a rate of 5% in 2003 and 2004, after having fallen slightly (1%) in the year under review. As a consequence of this trend in costs and revenues, the new goal laid down for the ratio administrative overheads / operating income from banking (excluding profits from financial operations) is 61% in 2004, against 67% in 2002; in turn, the cost-to-income ratio, which is calculated by expressing personnel costs and other administrative costs as a percentage of operating income from banking, should decline from 58.7% in 2002 to 53% in 2004, thus confirming the Bank’s commitment to improve the efficiency and profitability of its business operations.
Selective growth Net profit from domestic operations (including the Madrid branch and banking services to emigrant communities), climbed 17% in 2002 and accounted for 87% of the Group’s consolidated profit. This in turn is explained by around 103% by commercial banking (with an ROE of 15%) and helped to compensate for the negative contribution from participating interests. Investment banking’s share was situated at 6%, corresponding to a return on capital of 33%.
Net interest income in narrow sense generated by domestic activity rose by 3%, while commissions from commercial banking grew by 7%, with very significant increases in net income from insurance brokerage (+80%), transfers and payment orders (+11%), operations relating to loans and guarantees (+9%) and cards (+7.5%).
6 Banco BPI | Annual Report 2002 There was also a slight decrease (-4%) in asset management commissions, a result that can be considered favourable in the light of the situation pervading the markets and the lesser importance of investment banking commissions (-27%). The latter were influenced significantly by the slump in commissions from brokerage and capital market operations, which dropped 48% as a consequence of the negative climate enveloping the major stock markets.
The Group’s good operating performance, notably in commercial banking, was mirrored in the trend in deposits, which expanded by 6.4% and so outpacing the market average, and the 7.2% growth in global lending. This index reflects highly contrasting patterns among broad Customer and product segments: whilst the large companies’ loan portfolio registered a year-on-year fall of 9% in line with the strategy subordinated to criteria relating to returns on allocated capital, lending to individuals and small Chairman of the Management Board businesses climbed 19%, with a strong impulse from home loans (which Artur Santos Silva expanded 26%, against an estimated market growth rate of 16%). This translated itself into a new market share gain, replicating the trend since 1999. In just three years, BPI’s mortgage-loan portfolio market share has increased by more than 50% to stand at 10% at the end of 2002. This performance illustrates the competitive capacity that the Group has been building in the principal specialised markets of commercial banking following the 1998 merger, having captured positions well above its natural market share in the financing of investment, housing loans, motor car finance, credit cards and unit trust funds.
Another noteworthy development was the evolution of business activity in the Angolan market, which constitutes the most important area of the Group’s international involvement. Banco de Fomento de Angola (100% owned by BPI) became a local-law bank in July 2002 and carried out a major expansion programme during the year. It now boasts the country’s second biggest banking network with 17 branches. This expansion has enabled the bank to conquer second place in deposit- -taking and third place in lending business. These activities are complemented by an expressive participation in the Angolan economy’s external transactions. BPI’s international presence (which includes Banco de Fomento de Mozambique and a 17% stake in Rumania’s
Report | Introduction 7 Banc Post) contributed 13% to consolidated earnings, absorbing approximately 6% of the Group’s shareholders’ equity.
Efficiency and modernisation The Group’s increasing competitiveness has been permanently accompanied by a qualitative thrust centred on three focal points: absolute reduction in operating costs through the elimination of unwarranted expenses, improved capacity to automate through technological investment, and human resource upgrading induced by the rejuvenation of work teams and vocational training.
The strict execution of the rationalisation programme in the operations’ arena announced for the period 2002-2004, paved the way for a 3% reduction in the Group’s administrative overheads (personnel costs, outside supplies and services, depreciation and amortisation), with decreases of 1% in personnel costs, 6% in other administrative costs and 3.2% in depreciation and amortisation. These savings led to an improvement from 68.3 to 67% in the efficiency indicator, expressed by the quotient of administrative overheads over recurring income (defined as operating income from banking excluding profits from financial operations). A combination of factors contributed to this result, amongst which were the intensified migration of transactions to virtual channels, the automation of operating processes, the active management of the branch network (reflected in the net decrease of 25 points of sale), the integration of leasing and factoring into the commercial bank’s structure, and an ambitious plan for early retirements. This plan, which involved 22% of the Group’s senior management, made it possible to reduce the overall number of Employees by around 9%. It should be emphasised that the impact on costs arising from this reduction in staffing is progressive, that is, it was not fully reflected in the past year; furthermore, in spite of being apparently inconsiderable as regards the number of early retirements, the saving in total personnel costs more than cancels out the rise stemming from the collective employment agreement that had a global effect of close to 4%.
In the sphere of modernisation of processes with repercussions on operations rationalisation, automation and the ability to improve future income-generating capabilities, meriting special reference are the structural refinements which started to be introduced into the Group’s distribution systems and which are organised into two main camps:
– overhaul of the branch image and space, conceived to boost the sales and Customer relationship capability at the expense of transaction flow, and increasingly directed at the remote channels and automated zones available 24 hours a day, where it is possible to carry out all the banking operations not requiring personal contact;
8 Banco BPI | Annual Report 2002 – service specialisation by segment and by product, flowing from the reinforcement of the small business team, the opening of Investment Centres designed to cater for the commercial bank’s high-income Customers, and the extension of the dedicated attendance capability with the consolidation of the Housing Shops and the branch spaces reserved for mortgage loans and the Internet.
By the end of 2003, at least eight Investment Centres and 18 Housing Shops should be working, while 100 branches are expected to benefit from the new lay-out, with the consequent extension of the methods and equipment that have made possible the intensive migration of transactions and simple operations to automated banking under a specific project with specific goals managed by its own section head.
A decisive factor for the success of this transformation process has been staff rejuvenation and training, especially in the case of those working at the Individuals and Small Business Banking networks. In 2002, this universe benefited from a behavioural training programme devoted to boosting Customer-attendance quality and which involved more than three thousand Employees. The average age at these networks (whose staff have mostly been trained at the Bank) fell from 43 to 40 in the period 1999-2002.
Executive Members of the Board
Manuel Ferreira da Silva (Deputy-chairman) Fernando Ulrich (Chairman) Artur Santos Silva António Domingues
António Farinha Morais Maria Celeste Hagatong José Pena do Amaral
Report | Introduction 9 Strength and confidence BPI’s rationalisation and renovation has been carried out without ever losing sight of the crucial elements that ensure the Group’s sound financial base. In an economic environment – domestic and external – that is indubitably depressive and with a tendency to deteriorate, the quality of the loan portfolio depicts a slight deterioration, but nonetheless continues to present the market’s best indicators: at 31 December 2002 the consolidated ratios of loans in arrears for more than 90 days was situated at 1.3%, with a provisioning level of 153%. Overall, the specific provisions for loans in arrears more than doubled in 2002. Roughly half of this increase was earmarked to cover a specific default situation, excluding which the loans in arrears for more than 90 days would have declined to 1.1%.
At the end of 2002, the capital adequacy ratio was situated at 11.4% using the BIS (Bank of International Settlements) criterion, and 10.2% using Bank of Portugal rules, with Tier 1 calculated at 7.4 and 7.3%, respectively, thereby confirming the Bank’s healthy financial situation. In similar vein was the return of 3.3% earned by the pension funds, which compares very favourably with the market, preserving a unutilised margin of EUR 25 million in the 10% "corridor" envisaged by the Bank of Portugal for accommodating the actuarial and income variances without affecting net profit.
2002 will be primarily recalled in BPI’s history for the far-reaching corporate reorganisation concluded at the end of the year, with important effects on the Group’s system of governance. The principal and most visible alteration entailed the incorporation of Banco BPI in BPI SGPS, which simultaneously assumed the corporate object of a commercial bank and adopted the name of the incorporated institution – Banco BPI – assuming the mantle of the entity at the head of the Group and is listed on the stock exchange. In the same step, companies were extinguished which had hitherto headed important specialised activities that are now integrated in the Group’s two banks: Leasing and Factoring at the commercial bank, Brokerage and Development Capital at the investment bank. This restructuring brought about a definite simplification of the Group’s organisation structure and was responsible for an important reduction of the management structure and the attainment of considerable gains in terms of efficiency and operating expenditure.
This potential was acknowledged by the rating agencies Moody’s, Standard & Poor’s and Fitch, which confirmed BPI’s previous ratings and the stable outlook grading – the best classification amongst the universe of Portuguese banks. The success attained in 2002 in terms of operating efficiency, newly-manifested commercial ability and the principal indices of financial strength confirmed that BPI is on the right course for securing the best conditions of competitiveness and profitability in a future that is predicted to become increasingly demanding.
10 Banco BPI | Annual Report 2002 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 Rui de Faria Lélis
Management Board Chairman Artur Santos Silva Deputy-Chairmen Carlos da Câmara Pestana Fernando Ulrich Ruy Octávio Matos de Carvalho Members Alfredo Rezende de Almeida António Domingues António Farinha Morais1 Armando Leite de Pinho Caixa Holding, S.A., Sociedad Unipersonal2 Fernando Ramirez Isidro Fainé Casas João Sanguinetti Talone José Pena do Amaral Klaus Dührkop Manuel de Oliveira Violas Manuel Ferreira da Silva Maria Celeste Hagatong Riunione Adriática di Sicurtá Diethart Breipohl Roberto Egydio Setúbal Tomaz Jervell
Executive Committee of Management Board 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 Board Chairman Jorge de Figueiredo Dias Members José Ferreira Amorim Magalhães, Neves e Associados, SROC Augusta Francisco António Dias & Associados, SROC (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.
Internal Control Committee Chairman Ruy Octávio Matos de Carvalho Members Carlos da Câmara Pestana Alfredo Rezende de Almeida Caixa Holding, S.A., Sociedad Unipersonal2 Fernando Ramirez
1) Co-opted to fill the vacancy left by António Seruca Salgado's renouncement; the registration Figure 2 process with the relevant authorities is currently being attended to. 2) Succeeded Corporació de Participacions Estrangeres, S.L. – which was 100% held – as a consequence of a merger.
Report | Governing bodies 11 Historical milestones
LEADERSHIP, INNOVATION AND GROWTH
Sociedade Portuguesa de Investimentos was conceived in 1981 The Institution’s composition was reorganised in 1995: the with a well-defined project for a decade that had just started: to original BPI was transformed into an SGPS (holding company), finance investment projects launched by the private sector, to following which it was the only Group company listed on the participate in the creation of a dynamic capital market and to stock exchange, controlling Banco Fonsecas & Burnay and Banco contribute to the country’s industry modernisation. BPI counted Português de Investimento, in the meantime formed through the on a diversified shareholder base that included a strong domestic transfer of the assets and liabilities allocated to the business component, represented by 100 of the most dynamic companies activity traditionally conducted by this type of institution and in the country, and five of the most prominent international hitherto undertaken by BPI. financial institutions. This reorganisation precipitated the specialisation of the Group’s SPI was transformed into an investment bank in 1985, thereby various units and was accompanied by an important allowing it to attract sight and term deposits, grant short-term reinforcement of its shareholder structure with the entry of two loans, participate in the interbank markets and engage in new strategic partners of considerable size to team up with the currency operations. A year later, in 1986, the bank’s future Itaú Group: La Caja de Ahorros y Pensiones de Barcelona ("La direction was marked by the opening of its capital to the general Caixa"), and the German insurance group Allianz. public and the listing of its shares on the Lisbon and Oporto Stock Exchanges. A year later (in 1996) the acquisition of Banco de Fomento and Banco Borges was the beginning of a process that would In 1991, a decade after its formation, BPI had already conquered culminate, two years later, with the creation of Banco BPI, an undisputed leadership in the principal areas of Investment providing it with the largest single-brand banking network in Banking and assumed its ambition to consolidate its position as Portugal. Banco BPI was formed, in 1998, by the merging of one of the country’s premier financial groups. It was in this spirit Banco Fonsecas & Burnay (BFB), Banco de Fomento e Exterior that it resolved to acquire Banco Fonsecas & Burnay marking (BFE) and Banco Borges & Irmão (BBI), to be joined later that BPI’s entry into the Commercial Banking arena, affording it a year by Banco Universo (an in-store bank), acquired in the substantial gain in size in preparation for the corporate meantime. After the merger, the structure was significantly concentration process in the Portuguese financial system. It was simplified: BPI SGPS now comprises just two banking the Group’s overriding objective to guarantee the provision of the institutions: Banco Português de Investimento, named BPI complete range of financial services for companies and –Investimentos, and a new commercial bank called Banco BPI. individuals alike. An alliance was then forged with Banco Itaú, initially through its equity participation in BFB. In 1994, this interest was converted into a direct shareholding in BPI, following which Banco Itaú became one of the key shareholders.
12 Banco BPI | Annual Report 2002 The next three years – 1999 to 2001 – have confirmed BPI’s adopting the name Banco BPI and in simultaneous assuming the potential for growth, modernisation and structural reinforcement role as the entity at the Group’s helm. These alterations endowed engendered by the 1998 merger: the Group has boosted market BPI with a simplified legal configuration, more attuned to its shares in all the key areas of commercial banking, it has present business model: it will enable BPI to secure cost savings expanded and streamlined its distribution structure, rapidly and efficiency gains in the Group’s functioning over the next few transforming itself into a multi-channel bank, it has thoroughly years. renovated its technological capability and built up one of the financial system’s most dynamic brand names. In parallel, BPI intensified the programme – permanently being implemented – aimed at the rationalisation, rejuvenation and In 2002, BPI concluded an important internal reorganisation qualification of its human resources, with the overriding object of programme that substantially altered its societary structure and equipping the Bank with a staff structure that is properly the manner in which it is governed. In essence, the programme dimensioned and armed with the essential skills required for it to involved the centralisation of commercial banking at Banco BPI, affirm the objectives that form the basis for the Bank’s future while the investment bank focused on its natural business programme: efficiency, quality and service. vocation. BPI SGPS incorporated Banco BPI and, simultaneously, assumed the core business mission of a commercial bank,
Growth through asset consolidation M.€ M.€ 30 000 3 000
22 500 2 250
15 000 1 500
7 500 750
0 0 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0001 02
Total assets plus disintermediation (left-hand scale) Chart 1 Stock market capitalisation (right-hand scale)
Report | Historical milestones 13 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.
14 Banco BPI | Annual Report 2002 The BPI brand
In 2002, BPI Brand maintained its third place in the ranking Satisfaction of Portuguese banking brands according to the «spontaneous On another plane, very positive results were obtained in the awareness» indicator included in the Estudo Base sobre o surveys carried out by the bank and by independent entities Sistema Financeiro (Basef) published by the independent covering the trend in service quality, a crucial benchmark in company Marktest. This result is confirmed by the Bank’s brand positioning strategy. In this arena, BPI secured top place own polls and by the Publivaga polls carried out by Marktest amongst the largest banks in the National Index of Customer which assess the impact of advertising campaigns conducted Satisfaction, which was based on a poll conducted in the last during the course of the year. quarter of 2002. This annual index, which has been built up regularly since 1999, is founded on an European wide model Notoriety and is managed by two international organisations – the The results achieved enabled BPI to realise (for the third European Foundation for Quality Management and the European consecutive year) one of the principal objectives of its Organization for Quality. In Portugal, the index is compiled by a brand-management policy: to be situated amongst the top partnership of entities independent from the financial sector, three places in the spontaneous awareness (top-of-mind involving the Instituto Português da Qualidade (Portuguese reference) category. The BPI brand strengthened slightly in Quality Institute), the Associação Portuguesa para a Qualidade absolute terms and improved vis-à-vis the second and (Portuguese Association for Quality) and Instituto Superior de fourth-ranked banks. Accordingly, this performance confirms Estatística (Higher Institute for Statistics) and the Universidade the consistent improvement in this domain in a year marked Nova de Lisboa’s Information Management Centre. once again by a significant decrease in advertising expenditure. In comparison with the preceding financial year, BPI reduced its advertising spend by two thirds, falling from fifth to seventh place in the table of financial sector advertisers.
Efficiency According to data supplied by Publivaga, the only multimedia campaign conducted by the Bank in 2002 – BPI Automóvel,– attained high spontaneous and proven recollection levels. The same source places the Bank in the number one position in the 2002 classification for proven recollection in Television advertising, and second in terms of total spontaneous recollection taking into consideration all media channels. Besides the high degree of efficacy mirrored in these indices, BPI once again presented the best efficiency index for advertising investment within the financial system, as expressed by the relationship between the amount of space bought at market prices and the recollection level attained.
Report | The identity of BPI and the BPI brand 15 Corporate governance at the BPI Group
At the end of 2002, the BPI Group concluded an important Report on the BPI Group’s corporate governance process of internal reorganisation, the principal aims of The set of practices and guiding principles – whose which were simplifying the legal structure and streamlining application ensures a diligent, efficacious and balanced its governance model. BPI’s principles, policies and practices management of the interests of the company and of all its relating to the set of issues associated with the manner in shareholders – is described in the Report on the BPI Group’s which it is managed and supervised are described in the corporate governance. In this regard, we highlight: section dealing with the BPI Group’s corporate governance, which is presented as an annex1 to the Management Board’s – the equilibrium in the management body between the Report. number of directors representing key shareholders, the number of independent non-executive directors and the Corporate and management reorganisation number of executive directors; In December 2002, the BPI Group finalised an extensive internal reorganisation programme that essentially involved – the binding observance by members of management bodies the following facets. and Employees of the Group’s various companies of a set of internal rules which, in certain cases, are more onerous – the concentration at Banco BPI and Banco Português de than those imposed by law and professional associations; Investimento of typical commercial and investment banking activities, respectively. With this end in mind, – the existence since 1999 of an Internal Control certain specific business areas were incorporated into Committee, which is composed of members with non- these banks’ structures, entailing the consequent -executive functions, reinforces its independence and the extinction of the companies which had hitherto conducted effective compliance with its objectives; the aforementioned business activities. – the functioning since 1993 of a structure dedicated – Banco BPI’s positioning at the head of the Group (Banco exclusively to relations with investors and the market. BPI was incorporated by BPI SGPS which simultaneously assumed the business object of a commercial bank and Insofar as shareholder participation in the company’s affairs adopted the name Banco BPI). is concerned and, more specifically, the exercise of voting rights, BPI consistently pursues information dissemination – the creation, modification and closing down of a practices which are aimed at stimulating shareholder considerable number of divisions, with the consequent participation by means of the ample disclosure (by post, redistribution of areas of responsibility and the change in electronic mail and the Internet) of the holding of general the directors and managers attached to these. meetings, the matters to be dealt with and the different ways of exercising votes.
1) See pages 201 to 222.
16 Banco BPI | Annual Report 2002 Within the ambit of BPI’s Corporate Governance practices, it Public recognition is also worth noting: Within the ambit of the XVth edition of the awards for the best annual reports published by companies listed on the – the provision of detailed information about the policy and Portuguese stock exchange, BPI was distinguished in 2002 remuneration paid to the members of Banco BPI’s with the prize for the best financial sector annual report (for Management Board, including the stock incentive and the seventh time) and the prize – created for the first time – option programmes for Executive Directors and Employees; for the best report covering Corporate Governance amongst all the companies listed on Euronext Lisbon. These awards – the existence of an institutional website (www.bpi.pt), constitute unequivocal public acknowledgement of the where information supplied to the market by BPI is exhaustive and all-embracing manner in which BPI transmits permanently available in Portuguese and English (press information to the market addressing not only financial and releases, report and accounts, presentations etc.), and management aspects, but also the way in which it is specific information about events of paramount importance governed and controlled. for shareholders, such as the preparatory documents for general meetings, important data relating share capital increases or dividend payments.
Report | Corporate governance at the BPI Group 17 Social investment
CULTURE, RESEARCH, EDUCATION AND SOCIAL SOLIDARITY
In the 2002 financial year, patronage in the cultural, The Centro Nacional de Cultura (National Culture Centre) was
education, research and social solidarity fields continued to the recipeint of the BPI Group’s patronage for the publication
receive the BPI Group’s attention in projects and initiatives of the book "Pensar o Milénio com Edgar Morin", as well as for
which showed themselves to be properly structured and of the Associação Amigos de Yehudi Menuhin Portugal.
undoubted merit.
Support continued to be granted to Cultur Porto – Associação
In the cultural arena, the BPI Group renewed the Protocol de Produção Cultural; Associação Comercial do Porto, for the
signed with the Serralves Foundation and continued to lend publication of "O Tripeiro"; Associação da Casa Museu Abel
support to the following Foundations: António de Almeida; Salazar; Ateneu Comercial do Porto; Centro Social Cultural e
Eugénio de Andrade, Júlio Resende, Luís Miguel Nava and Recreativo Abel Varzim; CRAT-Centro Regional de Artes
Maria Isabel Guerra Junqueiro. Tradicionais, of the Oporto Municipal Council; Associação
Divulgadora da Vida e Obra de Teixeira de Pascoaes – Marãnus.
The protocol with the Calouste Gulbenkian Foundation providing
support for the cycle of "Great World Orchestras" was also In the learning and research areas, the Group continued to
renewed. Of particular significance was the participation involving dispense support for institutions of acknowledged merit, with
the concerts promoted by the Fundations Casa de Mateus and special emphasis on the Oporto and Coimbra Universities, the
Casas de Fronteira and Alorna, as well as those which took place Universidade Católica Portuguesa in both Oporto and Lisbon
at the Associação Cultural Monte de Fralães and the Oporto and the Universidade Técnica de Lisboa. BPI once again
Musical Culture Circle. Also worth noting was the sponsorship sponsored the magazine for past students – "Uporto". Also
forthcoming since 1998 of the Oporto Internal Music Contest. sponsored were the exhibition of Dr.ª Beatriz Gentil at the Fine
Arts Faculty and the publication of the book paying homage to
Still in the cultural field, the highlights included the Professor Edgar Cardoso at the Engineering Faculty.
acquisition and placing of the work by Pedro Calapez, offered
by the BPI Group to the Jerónimos Monastery, the purchase of At the Coimbra University the Group continued to sponsor the
a tiled panel conceived by José de Guimarães, destined for the Teixeira Ribeiro Prize, the creation of the research institute Jus
Deutsche Oper station in Berlin, and the support for the Gentium Conimbrigae and the participation in the activities of
exhibition of paintings by Francisco Laranjo. the Instituto de Direito Bancário, Bolsa e Seguros.
Giving continuity to BPI’s sponsorship of the collection of books As in previous years, the BPI Group was also heavily involved
on the work of Portuguese artists, a book was published entitled at the Catholic University, above all in the creation of the
"Mário Botas – o pintor e o mito", an anthology of the artist’s Universidade Católica Portuguesa Foundation with a
works. Assistance was also given to the publication of the book commitment to continued backing until 2011.
"Domingo de Manhã" with photographs by Jorge Henriques.
18 Banco BPI | Annual Report 2002 Support was also received by AR.CO Centro de Arte & Banco BPI continued to support the activities of the Fundação
Comunicação Visual; CITEX Centro de Formação Profissional da Portugal África (Portugal-Africa Foundation), of which it is the
Indústria Textil and Colégio Universitário de Montes Claros. principal founder. 2002 will be remembered as the year in
which the foundation’s new headquarters were inaugurated.
In the social solidarity area, assistance was given to the Banco This event inspired BPI to donate the works of art and
Alimentar contra a Fome (Anti-hunger food bank), to Abraço, to furnishings which adorn the workplace and exhibition areas, as
ASAS, to Cerci, to Clube Stress, to Liga dos Amigos das well as an important collection of documents dealing with the
Crianças do Hospital Maria Pia, to Liga Portuguesa Contra o theme Economic Development. Moreover, the Bank offered the
Cancro, to Fundação Pro Dignitate and to União das services of four of its Employees, which is equivalent to an
Misericórdias Portuguesas. annual contribution of around EUR 250 000.
Through the auspices of Banco de Fomento in Angola, a The programme of the Fundação Portugal África’s activities for partnership accord was forged to give aid to the activities 2002 included initiatives such as reactivating the teaching of envisaged under the "Projecto de Alfabetização para Crianças, arts and crafts in Mozambique, the Programa de
Jovens e Mulheres na Província de Kuanza Norte" (a project Desenvolvimento Agrário Integrado da Região do Chóckwè (an promoting literacy amongst children, adolescents and women integrated agrarian development programme for the Chóchuè in the province of Kuanza Norte). region), the projects Observatório de África and Diáspora
Africana, the database project Memória de África, the
Still in Angola, Banco de Fomento contributed on the basis of dissemination of an AIDS prevention programme and the the protocol established with the Ministério da Assistência e scheme supporting small investment projects in Cape Verde.
Reinserção Social, for the financial effort made towards the peace process. An important contribution was also made to the project aimed
at teaching Portuguese in the Diocese de Baucau (Timor).
In the same manner, another important initiative was the participation in the campaign "Vencer a Fome, Consolidar a Also in the domain of social solidarity, support was given to the
Paz – Angola 2002" (Conquering Hunger, Peace Consolidation Diplomatic Corps Bazaar with the high patronage of the
– Angola 2002) which the Fundação Pro Dignitate conducted Republic’s Presidency. in that country.
Substantial assistance was once again given to Mozambique through the Presidência da República (the Republic’s Presidency) and the Comissão Especial de Ajuda Humanitária a Moçambique
(Special Commission for Humanitarian Aid to Mozambique).
Report | Social investment 19 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 94% of its capital. International commercial banking business (which accounts Banco BPI serves more than 1.3 million Customers – for 6% of allotted capital) is essentially carried out by Banco individuals, companies and institutions – by means of a de Fomento Angola and Banco de Fomento Mozambique. multichannel distribution network comprising approximately 500 retail branches, a homebanking service (BPI Net), In the insurance sector, BPI operates in partnership with telephone banking (BPI Directo), specialist branches and Allianz through a 35% stake in Allianz Portugal, as well as structures dedicated to the corporate and institutional via an insurance distribution agreement covering the Bank’s segment. commercial network. BPI also owns a 50% interest in a credit insurance company. Banco Português de Investimento, the BPI Group’s original matrix, is engaged in investment banking business – Equities, Corporate Finance and Private Banking – in which BPI occupies a leading position. Private Equity business is conducted through a subsidiary company (84% controlled).
Main units of the BPI Group1
Domestic Commercial Banking and financial investments Banco BPI
Investment Banking International Asset Management Private Equity Insurance Commercial banking Banco Português Banco BPI BPI Fundos Inter-Risco Allianz Portugal de Investimento 100% Cayman 100% 100% 84% 35%
Banco de Fomento BPI Pensões Cosec Angola 100% 100% 50%
Banco de Fomento BPI Vida Mozambique 100% 100%
Banc Post 17%
1) Effective direct / indirect participations. Figure 3
20 Banco BPI | Annual Report 2002 Distribution channels
BPI distribution channels in mailand Portugal
Individuals Banking and Small Businesses Corporate Banking, Institutional Banking and Project Finance Clients Individuals Small Businesses Wholesale Large companies Medium-sized companies Turnover below 70 biggest business Turnover above Turnover between EUR 2.5 million groups EUR 25 million EUR 1.25 million and EUR 25 million Project Finance Institutional1 Physical network
Traditional branches 483 Investment centres 3 Wholesale 4 Large 7 Medium-sized 44 Housing areas 64 Housing shops 18 centres companies centres companies centres
BPI Net areas 228 Automatic branches 47 Project 1 Institutional 5 In-store 13 Automatic Bank (ATM) 1 007 Finance centres centres
Remote channels BPI Directo (telephone banking) BPI Imobiliário Banco Electrónico BPI 808 200 500 www.bpiimobiliario.pt 350 thousand subscribers 200 th. real estate properties announced BPI Net empresas BPI Net (homebanking) BPI Online (brokerage) www.bpinetempresas.pt www.bpinet.pt www.bpionline.pt 350 thousand subscribers 12 largest world-wide markets
1) Local authorities, autonomous regions, social security system, universities, public utility associations and other non-profit entities.
Overseas distribution network
Commercial Banking Investment Banking Banks Overseas branches Banco de Fomento, SARL (17 branches) Paris (9 branches) Santiago de Compostela Angola Madrid Madrid Banco de Fomento, SARL (7 branches) S.ta Maria – Azores (offshore branch) BPI Suisse (Private Banking) Mozambique Funchal – Madeira (offshore branch) Banco BPI Cayman Banc Post1 Representative Distribution agreements2 offices Canada (Montreal banc)* Paris Luxembourg* Geneva Belgium* Sweden* Hambourg United Kingdom* Newark Australia Brazil Caracas The Netherlands Johannesbourg
1) 17% shareholding. 2) Distribution agreements with banks or post offices (marked with a *) and agent networks.
Figure 4
Report | Financial structure and business and distribution channels 21 Human resources
RATIONALISATION, REJUVENATION AND QUALIFICATION
The BPI Group’s human resources policy remained At the end of 2002, the BPI Group’s workforce numbered concentrated on the execution of the strategic programme 7 007 in Portugal and a total of 7 576, of whom 6 583 directed at cost reduction and efficiency enhancement for were employed at BPI, 200 at the investment bank and 224 the three-year period 2002-2004. The implementation of at various subsidiary companies, while 569 were deployed in rationalisation, rejuvenation and qualification measures overseas operations. contributed decisively to the continued and gradual qualitative improvement in human resources. BPI Group staff complements No. 10 000 The internal reorganisation carried out by BPI during 2002 with the aim of simplifying and boosting the flexibility of its 8 995 9 000 organisation whilst at the same time reducing its operating 8 359 costs, involved the redistribution of the areas of 8 239 8 123 8 106 responsibility and changes in the directors and managers 8 000 7 695 7 576 associated therewith that resulted in a net reduction of 30 Employees (22%) with top management functions. 7 000 Activity abroad Activity in Portugal
6 000 9697 98 99 00 01 02 Chart 2
BPI Group Employees1 End-of-period figures Period average figures
Dec 2000 Dec 2001 Dec 2002 ∆% 01 / 02 2000 2001 2002 ∆% 01 / 02 Banco BPI 7 035 6 699 6 583 (1.7%) 7 187 6 958 6 494 (6.6%) Banco Português de Investimento 427 453 200 (55.8%) 398 444 433 (2.5%) Other subsidiary companies 459 450 224 (50.2%) 474 436 414 (5.0%) Activity in Portugal 7 921 7 602 7 007 (7.8%) 8 059 7 838 7 345 (6.3%) Overseas branches and representative offices2 160 163 162 (0.6%) 161 150 164 9.6% Overseas banks3 278 341 407 19.4% 257 314 370 17.8% Overseas activity 438 504 569 12.9% 417 464 534 15.2% Total1 8 359 8 106 7 576 (6.5%) 8 476 8 302 7 879 5.1%
1) Includes limited-term contracts and temporary employment of people having no binding work contracts. Note: at 31 December 2000, 2001 and 2002 Table 2 the number of Employees with limited-term contracts in Portugal stood at 570, 569 and 359, respectively, while in the same years the corresponding numbers relating to overseas activity were 23, 22 and 15. On the other hand, there were 166 people working on a temporary basis in December 2000, 111 in December 2001 and 46 in December 2002. 2) Activity with non residents, namely, emigrant communities; includes branches in France and Spain and representative offices. 3) Banco de Fomento Angola and Banco de Fomento Mozambique.
22 Banco BPI | Annual Report 2002 BANCO BPI
The human resources policy adopted – bearing in mind that at the end of 2002, 4 605 were integrated in commercial the banking sector is associated with more demanding activity and 1 978 in central services. quality standards and where competitiveness is ever increasing – had as its chief goal securing productivity gains. Of the 385 integrated into Banco BPI by reason of merger or demerger, at the close of 2002 379 were attached to areas Following the organisational restructuring concluded in included in "central services". 2002, of the 6 583 Employees working at Banco BPI
Banco BPI Staff Complement Distribution by area of activity
1) Telephone Banking, Internet, Protocol Banking and Automated Banking. Commercial activity (70%) 2) Cards, mortgage loan finance (which includes 18 housing shops), personal 4 605 loans and motor car finance. Central services (30%) 1 978 Note i: the criterion used for classifying Employees by operational areas was altered. In terms of the new classification system, in addition to personnel attached to the branch network and the corporate centres (previous concept of the commercial network), Employees allocated to the non- Areas 2002 % -traditional channels, product factories and marketing are now considered Retail branches and corporate centres network 3 697 57 to be deployed in commercial activity. According to the previous criterion, Non-traditional channels1 296 4 the number of commercial network Employees dropped from 3 848 to 3 697, while the number of central services Employees rose from 2 851 to Products factories2 519 8 2 886. Marketing 93 1 Note ii: does not include overseas activity. Central services 1 978 30 Note iii: includes temporary workers: 149 in 2000, 92 in 2001 and 43 in 2002. Chart 3
The thrust to attain the goal of enhancing productivity and Banco BPI staff complement competitiveness levels led to the recruitment of 153 University degree and Employees – the vast majority with higher academic average age1 % qualifications –, at the same time providing a strong 50 50 incentive for internal mobility amongst personnel. 47.0 45.3 40 43.7 45 On the other hand, 500 Employees with an average age of 42.5 35% Staff with university 56.0 years left the company’s employment owing to early 32% degree as a % of total retirement, pre-retirement or the attainment of retirement 30 28% 40.5 40 (left-hand scale) Average age1 25% (right-hand scale) age. These Employees had worked in the banking sector for 22% an average of 33 years, while their academic background 20 35 1) Figures adjusted by the was largely primary or secondary schooling. number of years elapsed between each year and 2002. 10 30 98 99 00 01 02 Chart 4
Report | Human resources 23 This trend was responsible for the number of Employees with Banco BPI’s Employees – selected indicators higher educational training rising to 34.5% (28.4% in 2000 2001 2002 Employees 6 699 6 583 and 31.8% in 2001). It also had an important impact on the Higher education 31.8% 34.5% individuals’ network, where personnel with academic training Average age 41.5 40.5 rose to 26.5% and, despite the passage of yet another year, Average period of service 16.1 15.4 the average age fell to 40.1. Men 53.6% 52.8% Women 46.4% 47.2% Employees / Branch 6.0 6.2
Note 1: does not include automated branches and includes Table 3 3 investment centres. Note 2: in 2002 includes 385 Employees integrated into Banco BPI by force of merger or demerger of the Group companies.
Training In 2002, BPI continued to pay special attention to training As part of the process to strengthen staffing at the individuals as a tool promoting the development of skills and the network, three training bursaries were initiated. The 25-week consolidation of attitudes and behaviour. programme covers theoretical-practical classroom instruction, complemented by on-the-job training. This programme, which In this context, the main initiatives involved training is expected to finish in the first quarter of 2003, embraces programmes focusing on attendance, sales and sales teams 74 university graduates and occupies 64 200 training hours. with the object of enhancing operating efficiency and raising service standards. These courses were attended by all the In summary, 3 857 Employees (60% of the total workforce) personnel attached to the individuals and small businesses participated in training courses during 2002 in a total of network, including branch managers (departmental heads). 105 thousand training hours. A total of 3 036 people attended 258 training sessions which extended over 72 400 hours. This programme is scheduled to In order to foster the personal and professional advancement of continue this year to cover newly-admitted staff and others its Employees, Banco BPI pursued a policy of giving support to whose careers fall within this ambit. staff taking courses that confer university degrees. In this regard, BPI gave its support to 140 graduates and 40 post- Behavioural training was extended to other areas of the Bank, -graduate and masters degree candidates, principally in the with special emphasis placed on themes such as team academic fields of business management and information management, team work and telephone attendance, all of systems. which entailed an additional 2 200 training hours.
24 Banco BPI | Annual Report 2002 Technology
BPI’s information systems are based on a multi-channel management and financial management solutions, are architecture, robust and scalable, and on the full integration available in a technologically innovative form that is of Web technology and corporate transaction platforms. The integrated with the traditional applications. High levels of Bank has its own information and transaction intranet, performance and robustness are central objectives in the universally available, which constitutes a common interface design and maintenance of the information systems, for an increasingly significant number of internal and translating themselves in this fashion into significant business processes. The support for business management, efficiency and availability indices. marketing and sales, and for the control and management of processes, as well as the front-end, Customer relationship
Principal indicators of efficiency, availability and performance Processing capacity (mainframe) 610 MIPS Storage capacity (in Terabytes) 15.4 Tb PCs per Employee 1.2 Employees with access to Intranet and e-mail 100% Number of processes "intranetised" 62% Page views in the Intranet 330 000 / day Availability of transaction sites 99.8% Employees with access to the Internet 20% Page views in the Internet (all BPI sites) 33 500 / day Branches: opening before 8h30 99.2% Real-time Cards: from 7h00 till 4h00 100% Response time to transactions at the branches 99.85% less than 3 seconds Transactions on the multi-channel platform 200 000 / day Technological help desk: resolution of problems 98% less than 2 hours
Table 4
Report | Technology 25 Activity in the information systems’ areas during 2002 Security revolved around five main aspects: Special attention was paid during the year to the further evolvement and consolidation of the disaster recovery project Support for business and sales and business continuity, as well as the revision and The core objective of BPI’s information systems is to provide implementation of internal control mechanisms for the use of a response to business needs. Amongst the priorities of computer-based resources and the launch of the GAS project 2002, the most noteworthy were the ongoing development of – Gestão de Acessos e Segurança (Access and Security sales-support solutions, namely, making available more Management). integrated information about Customers and products; the upgrading and optimisation of management-decision Enhanced internal efficiency systems, the response to the needs stemming from Corporate Work continued on the projects aimed at the implementation Banking’s new organisation and the evolution noted in the and consolidation of the IT rationalisation programmes and operating applications solutions designed to handle and the reorganisation of the in-house teams. control national and international payments. The BPI Group’s restructuring Availability of structural solutions The operating reorganisation that involved several business Of the work embarked on in 2001 which extended into areas, but in special the merger of companies into the 2002, mention is made of the entry into service of a new Group’s banks entailed a considerable adjustment of multi-channel platform at Telephone Banking (BPI Directo) informative systems supporting those business. and at Online Banking (BPI Net, Individuals and Companies), the development of the Group’s SIP project – Sistema de Informação de Pessoas (People Information System) – and the new global interface and operations storage model, Operational Data Store, which involves all the Group’s operational applications (in other words, information factories).
26 Banco BPI | Annual Report 2002 BUSINESS AND SALES SUPPORT Opportunities Server The Opportunities Server, one of the chief pillars supporting regards the information about Customers and products, as the Bank’s commercial activities and functioning since well as the functionalities available, in particular, with 2000, was the object of major improvements in 2002 as respect to the integration and updating of opportunities.
Opportunities Server Centred on the Customer, the Opportunities Server is a system The Opportunities Server essentially provides information designed to support and manage the Bank’s commercial stored in the data warehouse about products, services, activity, from the standpoint of both the networks and the transactions and Customer profiles. Data mining of this direct channels. More than 1 million contacts originated by the information is effected and automatic business rules defined Opportunities Server were made in 2002. that result in the identification of opportunities.
The Opportunities Server is built on a database organised This information is accessed via the intranet, enabling the according to the products and services which are considered to selection of Customers for the execution of commercial action, constitute Customer sales opportunities. The system also recording the results and controlling the effect of sales functions as a tool for managing contacts, controlling campaigns and activities. commercial activity and providing general backing in dealings with Customers. The principal focus is on Customer retention, On the other side, the Opportunities Server is a source and service quality and fostering existing Customer relations, means of controlling the results of all direct marketing and although it also acts as an instrument for managing contacts telemarketing activity. with potential Customers.
Data Mining Opportunities detected Products (Cards, Channels (Net, Business Process Data warehouse (Marketing) by the network Loans, Funds,...) Directo, Branches,...) Managers Automatic rules Simulators User defined rules Customer requests
Opportunities Base Campaign management Opportunities Contacts management
Opportunity Selection of opportunities by the user Operations transaction Sales force management (Intranet, Internet, Call-center, ATM)
Search instigated by Search instigated by Search instigated by Salesperson Customer Marketing (via any network) (via any channel) (for any product / service)
Figure 5
Report | Technology 27 The integrated attendance solutions for special Customer GPC Personal loans segments – Private Banking and Institutional Clients – This module is designed to handle all the non-mortgage benefited from developments in the field of analysis and credit on offer to individuals, whether Customers or non- negotiation. These areas can now count upon platforms that -Customers. It integrates a specific internal scoring module integrate all the information flowing from the relationship and interacts directly with central applications, thereby with the Bank: ranging from operations to contacts, permitting the management of the whole process, starting including the respective dealings. The operating and support from simulation right through to the release of funds. systems for discretionary portfolio management and monitoring, were also subjected to a series of improvements. GPC Motor car finance This application was developed with the aim of handling all Management of business processes motor-car financing processes, both in partnerships (via The support systems for management decisions benefited in extranet) and at all the internal networks. The simulation / 2002 from important developments: the efficiency and / decision component for ALD (long-term rental), Leasing and quality of the processes were improved and control boosted, Credit entered into service. This is a system integrated with while operations have become more standardised and the Bank’s various business partners, incorporating the simplified. In parallel, new applications models were unique characteristics of the respective brands and products, launched. as well as the existing bilateral agreements. The next stages being developed seek to implement the handling of GPC Home loans proposals right through to contracting, the integration into BPI’s pioneer module in the area of process managers (GPC) the operational systems and the extension to the other was the target of numerous interventions with the object of channels. simplifying and optimising the relevant circuits, tasks and procedures. The application was also adapted from a legal GPC Cards and commercial perspective, and the interfaces with the Designed to handle the capture of the entire range of BPI operational systems optimised. The alterations introduced credit cards (personal and corporate), it is characterised by paved the way for costs to be reduced, internal productivity the large volume of processes handled. This constitutes an raised and the quality of service offered to Customers additional challenge in the implementation of the IT enhanced. solution, since it entails the incorporation of automatic decision criteria and specially-prepared channelling filters. In 2002, the three modules described below were made available.
28 Banco BPI | Annual Report 2002 Loans process management GPC is a system that administers the entire lending process, The computerised implementation of these concepts from the first contact by the Customer right through to the presupposes a comprehensive review of the business processes signing of the respective operation, including the simulation, and the ex-ante conceptualisation of all the decision rules, sale, decision, operating tasks contracting, registrations and elements and flows. This represents an even more complex overall control. challenge than the actual implementation of the technological solution itself. This is a completely Web-based, multi-channel system, integrated with the other operational systems, available on the At the present time, the modules in service are those relating Bank’s intranet, accessible by Customers on the Internet and to Housing (since 2000 and the object of permanent upgrades on the extranet for the entities with whom the Bank possesses and new functionalities), Consumption, Cards and Motor Car credit agreements, at the point of sale. (these launched during 2002). The strategy followed since the conception of the GPC has been confirmed to the extent that The infrastructure created is global. The aim is that all the superior efficiency and quality, added control, cost reduction, loan products are handled by this system so as to create a operating standardisation and simplification are assured. common repository for operations, rules for decisions, business and credit control. In the case of standard products The widespread application of this concept to Companies and (consumption, cards, housing, motor car), the objective is that Small Businesses was the object of analysis, taking into loan decisions be taken in real time, at the moment when the account the specific nature of these segments. 2002 also saw operation is initiated. the implementation of the first system that will permit this model’s start-up: the Limits Management application.
People information Data warehouse System
Intranet House loans
Personal loans Internet Simulation / Decision Proposal Final decision Contracting Post contracting Motor car Application (+Scoring) finance Extranet Credit cards Other
Simulations Loan Process Management Link to Operations
Opportunities Server Customers Accounts Loans Insurance Security / guarantees Information for Management Real estate
Figure 6
Report | Technology 29 Business support solutions for companies BPI Net Empresas Several IT projects were developed with the aim of making This is a new service provided via the Internet and directed available an application architecture integrating risk analysis at Companies. It is currently in the final phase of quality and the management of information, thereby making the testing. The goal is to provide an access platform to the loan-decision process more flexible and improving control, Bank with a view to the execution of operations and the monitoring of operations and the interaction with consultation. It integrates existing IT solutions at both Customers. technological and applications levels.
Groups of companies Other business support solutions This module allows defining and managing groups of The speed of execution and the capacity to control national companies, since it is capable of representing various types payment orders, namely, those received through the remote of associations and relationships with the attributes and channels, benefited from major IT application developments. specific features of each situation. On the other side, the handling of international payment orders has now become fully automated. This will permit Credit limits greater speed of execution, more rigour and security. These This system permits the recording of approved limits objectives were similarly behind the optimisation of the according to the class of risk relating to groups and entities, applications for processing documentary operations. the use and control at the various levels for complying with the internal rules of the general credit regulations, the AVAILABILITY OF STRUCTURAL SOLUTIONS gathering of utilisation proposals and the implementation of Multi-channel platform the decision workflow, operational control and routing. It This is a new transaction-access platform for the Bank’s stores the commercial information of the Groups and systems through the various remote channels, which are now Companies, and is interconnected to the document more robust and scalable, and offering better performance. management and Customer information system. The objective is, besides guaranteeing the technological evolution of the infrastructural solutions, to ensure the Information management adaptation to the increased interactivity with Customers, not Information aggregated by groups of entities has now become only through the remote channels, but also in the future via available, namely, that relating to the status of integrated the traditional channels. involvement with the Bank, rating information and various grades.
30 Banco BPI | Annual Report 2002 Multi-channel platform Objectives Implementation plan Banco BPI has had a single platform for the remote access, For security reasons and in order to minimise the impact on call centre and BPI NET channels since February 2000. The existing solutions, a phased migration plan was formulated. choice of this platform resulted, amongst other factors, from BPI Directo was the first channel to be integrated since it the need to respond in a short period of time to the need to constitutes the environment with the most control and can only boost the bank’s traditional business through the medium of be accessed internally. Then followed the integration of BPI non-conventional channels. Net (Individuals and Small Businesses) and the new channel dedicated to companies: BPI Net Empresas. According to the strategy for the evolution of the technological infrastructures, it was decided to design and implement a BPI Net Prototype solution based on a new architecture that is more robust, Individuals of the New and Small Branch Call-center BPI Net scalable and with a better performance capability. At the same Businesses Platform Companies time, it had to ensure adaptation to the growth in Customers’ contacts with the Bank via all the remote channels and branch network. The first phase of the integration of the remote 12 August 30 November February April channels was concluded with success. The prototype that will 2002 2002 2003 2003 lead to the complete integration of the branch solution into the Figure 7 multi-channel platform is presently being implemented. Results Features The new multi-channel platform has been providing superior It is a platform which aggregates the operations flowing from levels of efficiency, scalability and service, while preserving the the various distribution channels. It functions as a go-between high standards of quality: in 2002, the number of transactions the front ends and the operational applications. This new per second achieved was 100% more than the previous year’s solution’s main characteristics are the recording of the figure, with a total daily volume in the order of 200 thousand operations originating from the various channels, the validation transactions being recorded. of business rules, security in accessing information, extensive availability, greater scalability and the modular architecture. Partners Microsoft was the key partner in the platform’s design and The new platform permits: implementation, as was the case in other projects involving Banco BPI’s technological infrastructure. – responding more rapidly to business needs;
– obtaining an integrated vision of operations carried out with Customers through the various channels;
– making available new functionalities without interrupting service in the various channels.
Report | Technology 31 Data warehouse BPI’s data warehouse is founded on a number of structured, Amongst the Intranet pages that are permanently available, the coherent and integrated databases, updated daily, and which following are worth noting: brings together the information relating to the characteristics and flows of all the products and all the data relating to – the integrated position relating to Customers and groups of Customers. Customers, with varying levels of aggregation and detail, including internal information concerning the products and All this information is then made available on the various services of various Group entities and external information, channels. In this fashion, it is possible to analyse the for example, obligations at the Bank of Portugal); information from both a static and time span perspective when the approach is made according to Customer, channels, – management information, with details of timings (daily products or transactions. production and time-based evolution), commercial hierarchy, products, situations (levels of compliance), amounts and This information can be accessed in three ways: prices;
– the web pages on the Intranet permit permanent consultation – the specific web schedules, for predetermined purposes, of reports, which are thus available to all Employees, always with an integrated perception of the Customer, such although different access levels have naturally been as the case of the control of defaults, the future maturity of established; financial placements or the product penetration rates;
– the tools for exploring information, data mining or the – the sporadic integrated views of Customers, groups, production of reports, are available to specialised users, contracts, products or services which are available on the namely, from the marketing and planning areas; pages of other systems, such the GPC, Opportunities Server, Credit Limits, Guarantees and others. – contribution of information for the other application solutions with special functions, amongst which we highlight the The data warehouse also plays a decisive role in the new applications for analysing profitability and risk, and the application solutions, as is the case for example of the loan applications for producing official reports. and sales areas, as well as that of support for direct marketing and telemarketing.
Data warehouse
Front-End Business support Information management Statistics, Grading and Control
Customer information Opportunities Server Management Control Accounting Control Group information Commercial Action Plan MIS – Management Information Information for Auditors System Accounts information Loan Process Management Bank of Portugal Statistics EIS – Executive Information System Contract information Credit Limit Management Economic Forecasts Profitability Analysis Integrated Products Position Company Ratings Tax Information Risk Management Integrated Services Position Company Profitability
Figure 8
32 Banco BPI | Annual Report 2002 Global model of banking operations and interface subsystem SECURITY BPI currently possesses a powerful data warehouse that is The permanent attention devoted to operational security and updated daily from all the operational applications. This stability were at the origin of numerous initiatives, amongst facility constitutes a source of commercial, risk-control and which: Customer information. The more intensive use and increased demand for detailed information led the Bank to conceive a – the launching of an ambitious project in the area of Access new model for storing operations, capable of responding to Management, the design of which is based on the all commercial, accounting and statistical information, implementation of rules capable of regulating the access to thereby creating an interface layer between the operational and operation of all of BPI’s IT systems, as well as the systems and the storage model. creation of IT platforms geared to supporting the system’s operation and audit; People Information System One of the central elements of the applications’ architecture – the institution of rules and processes relating to computer is the SIP – People Information System, currently in the resources. By way of example, we refer to the active implementation phase. This system will place at BPI’s filtration of electronic mail content and Internet accesses, disposal a single and all-embracing information database the rationalisation of diskette and CD_ROM reading relating to people, Customers and other entities with whom devices, and the drafting and publication of regulations the Bank already maintains or could establish commercial or relating to the use of the information systems; institutional relations. This new system’s architecture will equip the Bank with greater capacity to respond to mounting – the remodelling and expansion of the Bank’s principal commercial and management needs in general, and will data-processing centre (CPD), where the majority of the launch the bases for the various refinements to our technological support systems are located. This project was information systems’ architecture. Some of the system’s aimed at obtaining substantial improvements in the modules, namely, these designed to handle groups of entities conditions for equipment installation and functioning and hierarchies within the ambit of the applications’ through the doubling of the area available and the remodelling relating to Corporate Banking, have already implementation of new electrical feed solutions, commenced functioning. climatisation and physical security;
– the revision and updating of BPI’s contingency procedures as concerns the computer systems. This project, which is expected to be concluded in 2003, covers all the technological platforms. It is not limited to the central systems, but extends to all the processing and telecommunication resources housed in the Bank’s various buildings. Of course, the interaction with the underlying business processes and the respective continuity planning are assured.
Report | Technology 33 INCREASE IN INTERNAL EFFICIENCY The implementation and consolidation of the IT – applications’ development and technological infrastructure, rationalisation programme – primordial objectives in the field with a mission to analyse and develop projects, at the of information systems – gave rise to several initiatives, as same time as maintaining and providing support for the described below. solutions already implemented;
– management of the installed capacity, thanks to the – planning and control, horizontally aggregating functions, introduction of metrical scanning which permits a thorough namely, management and monitoring of request for IT assessment of the present situation and the preparation of assistance, quality testing, security and planning. growth estimates with a high degree of realism and precision; THE GROUP’S RESTRUCTURING The operations flowing from the BPI Group’s restructuring had – management of work posts (desktops), taking into account an appreciable impact on the various areas of information a more correct dimensioning of the resources available to systems; from the management of infrastructure, systems and Employees; operations (which were centralised) through to application solutions, adapted and developed in such a way as to ensure – renegotiation of contracts. A systematic and in-depth the integration with the Bank’s applications’ architecture. analysis of the principal contracts relating to the supply of goods and services was conducted. This review led, firstly, to the reassessment of necessity and degree of utilisation of the goods and services, and subsequently, to the renegotiation of contracts with the respective suppliers, with the object of optimising the financial aspects and operating conditions.
Intimately linked to the goal of computer equipment rationalisation, another initiative centred on the rationalisation of BPI’s internal teams. The aim was to achieve a more specialised and flexible structure, geared to respond in a pragmatic manner to the challenges posed today by such a complex area undergoing constant change, as is the case with the IT sector. This restructuring led therefore to the composition and organisation of the teams to cover two major areas:
34 Banco BPI | Annual Report 2002 Operations
Priority activity in the operations area in 2002 focused firm is responsible for the entire supply process, from attention on the rationalisation of resources through the production through to the distribution to the Bank’s various analysis of means and processes. As a result, it was possible premises. In addition, a start was made to the to reduce permanent staff by 30% – 114 employees rationalisation of forms so as to reduce their diversity and attached to these functions – as well as liberating occupied the range of alternative stationery; space with an area of 5 000 m2. – an 11% decrease in postage costs. The rationalisation of Negotiation with the Group’s main partners and suppliers, in integrated-statement mailings led to a decline in the conjunction with the implementation of a strong cost-cutting amount outlaid on postal services. policy, brought about a significant decrease in operating costs, the most noteworthy being: Furthermore, continuity was given to the programme initiated in 2000 for the outsourcing of activities. The underlying – a decrease of 13% in printing and finishing costs with the philosophy is aimed not only at precluding the Bank from elimination of print-outs considered to be unessential and becoming involved in activities that do not fall within its core the changeover of the integrated statement from a monthly business activity, but also to create the conditions for the to a quarterly one; progressive reduction in operating costs and for improving the quality of the services which are now measured and – a 49% reduction in voice communication costs – as a subjected to written contracts. result of the rationalisation of accesses to the telephone network and the implantation of links at central buildings In this context and via an initiative of the interbank system in such a way as to transform fixed-to-mobile into mobile- strongly backed by Banco BPI, the Bank’s clearing area was -to-mobile communications. At the commercial network, transferred to SIBS Processos. This step will enable BPI to mechanisms were created aimed at reducing voice free a considerable number of resources, as well as a communication costs to the various mobile operators; significant amount of floor space situated at a prime location in downtown Lisbon. – a saving of 22% in computer-equipment rental costs. The contract portfolio was the object of an in-depth review and Notwithstanding the reduction in the size of the Bank’s readjusted to the Bank’s real requirements. In parallel, motor vehicle fleet in recent years – roughly 27% – a start contracts were terminated where the attendant costs were was made in 2002 to transferring its fleet-management higher than the expected benefits; department to an outside entity by resource to operating rental contracts rather than direct acquisitions by the Bank. – 12% cut in the amount spent on office stationery and This measure was preceded by the definition of a disciplined materials. A standardisation project was implemented for and strict policy relating to motor-fleet costs. office materials, forms, refreshment and hygiene articles, thereby avoiding expenditure on materials considered to be surplus to the Bank’s operations. At the same time, the single supplier model was adopted in terms of which one
Report | Operations 35 In addition, a considerable part of the cleaning services was At the end of the year and in the wake of the Group’s outsourced – about 50% – with this process scheduled for restructuring, Banco BPI’s operations integrated the conclusion next year. corresponding areas of Banco Português de Investimento and other companies. The resulting centralisation of these The production of micro files was also one of the activities operations led to tangible productivity and efficiency gains. transferred to an external entity during the year, leading to Similarly, the areas relating to works and maintenance, an appreciable saving of more than 40% in deployed buildings and security were integrated within a same single resources. command unit of the operations area.
Reorganisation of the procurement areas Under the project launched in the first half of 2001, the Bank In this regard, the range of products to be acquired was grouped the various purchasing areas that previously existed at analysed taking into consideration the respective degree of Banco BPI – responsible for the acquisition of goods and risk: i) probability and impact of a failure in distribution; ii) services in the market and scant connection between them – relevance for the final product; iii) impact on Customers; and under a new structure functioning as part of the Operations iv) market volatility and annual expenditure. and Procurement Division. From this review, it was concluded that there exists a spectrum This stage was preceded by the design of the organic and of products with low risks and high costs, in relation to which functional structure, the allocation of the necessary human the fundamental aspects are the negotiation of price and resources and the preparation of functional descriptions for service levels. back-up services. This model embraces furniture, fixtures and fittings, stationery In practice, the purchasing function was centralised, not only (office materials and printed matter), refreshments, cleaning in organic terms but also geographically, with clear savings and hygiene, which were adjudicated to single suppliers. The being made in deployed resources and improved interaction management of stocks and distribution was also transferred to with the Bank’s partners and suppliers, who now have just one these suppliers. BPI department to deal with. Insofar as high-risk and high-cost products are concerned, the At a later stage, a strategy was formulated for the acquisition most important issues refer to price, duration of the contract, of goods and services based on previously analysed processes service levels, stock management and distribution, with the and underpinned by the policies pertaining to sourcing, stocks Bank opting progressively for strategic partnerships. and distribution.
36 Banco BPI | Annual Report 2002 As concerns policy on stocks, the Bank has its objective a zero In parallel with these initiatives, other projects were launched stock level bearing in mind that these do not add value and aimed at standardising in-house products. This entailed constitute a heavy burden on the cost structure, notably, in selecting and defining the basic products consumed by the products where the risk is deemed to be low. Bank, flowing from which an expressive number of items were eliminated, as well as the elimination and standardisation of The path followed as regards non-critical products entailed forms and the selection of alternative, less expensive products. transferring these to partners and suppliers. These measures resulted in a 20% reduction in articles used.
As for distribution, various transportation models were studied In order to support the procurement area, consideration was – direct, assembly and milk run, taking into consideration the given to the acquisition of an ERP system (Enterprise Resource number of suppliers needed to respond to product requisitions. Planning) with a view to providing complete and integrated support for the processes designed during the course of the The Bank basically functioned on an assembly distribution project. Subsequently, given the simplicity of the processes model, that is, products were delivered by a number of defined, the decision was taken to opt for in-house suppliers to a centralised location of the Bank, with the Bank development using an existing platform and resorting to Web subsequently taking on the task of distributing these items technology. The development of the solution that will permit amongst the various users. automating and integrating an array of tasks is scheduled for 2003 after the completion of the rationalisation and The model adopted, namely, for specific items of stationery simplification of processes. (forms and office materials), hygiene, cleaning and staff refreshments, is founded on the system under which the In a period of eighteen months, the structure dedicated to partner supplying these goods is responsible for distribution. purchasing underwent a 58% decrease in manpower, at the As far as the other articles are concerned, in particular, those same time as the occupied floor area was cut by around relating IT systems, the assembly distribution model was 4 000 m2, notably in storage space. retained. As regards costs incurred with stationery (office materials and printed matter), staff refreshments, hygiene and cleaning, savings of around 12% were achieved.
Report | Operations 37 Highlights of 2002
January, 16 BPI informs the market of the implementation of a stock (share) incentive and options programme (named RVA – Remuneração Variável em Acções – Variable Remuneration in Shares), linking in this manner a portion of Employees’ remuneration to the appreciation in the price of BPI shares. Applicable since the 2001 financial year, the programme encompasses the Directors and an expressive number of Employees.
January, 31 Banco BPI acquires from the Portuguese State the EFTA Fund’s loan portfolio (a fund promoting Portugal’s industrial development) following the fund’s cessation of activity on 31 January, after 25 years of making an exemplary contribution to the modernisation of Portugal’s manufacturing capability. During this time, the fund contributed to the creation of 15 thousand new jobs and the stabilisation of a further 174 thousand.
February, 7 BPI releases the consolidated results for 2001 financial year. Posted a net profit of EUR 133.3 million and ROE of 14.7%.
March BPI launches a new site dedicated to information of an institutional nature about the Group, available simultaneously in Portuguese and English and accessible at www.bpi.pt
March, 13 The Executive Committee of BPI SGPS stages the II Annual Conference for Analysts and Investors at the Centro Cultural de Belém in Lisbon, at which the BPI Group’s operations, prospects and strategy were debated.
April, 3 The Annual General Meeting, at which shareholders were present or represented holding 57.2% of the voting rights, approved (with 99.8% votes in favour) the annual report and accounts, the dividend, the governing bodies for the three-year period 2002-2004 and the increase in share capital from EUR 645 625 000 to EUR 760 million.
April, 24 BPI presents the results for the 1st quarter. Net profit earned of EUR 42.3 million, giving a ROE of 18.2%
April, 26 BPI pays a dividend of 9 cents per share, unchanged from the previous year, corresponding to a payout of 43.6% and a dividend yield of 4%
May Share capital increased to EUR 760 million, through the issue of 114 375 000 shares reserved for shareholders at a price of EUR 1.75, fully subscribed and paid-up. The cash proceeds raised amounted to EUR 200.2 million. The public deed was signed on 3 June.
July, 1 BPI opens the first Investment Centre, at Marquês de Pombal in Lisbon. This innovative "product" is based on the concept of a specialised and personalised service targeted at high net-worth Customers or those with a strong potential for accumulating wealth.
July, 1 Formation of Banco de Fomento, SARL, in Angola, with a share capital of kwanza 1 305 561 thousand (EUR 30 million), 100% owned by the BPI Group. This company resulted from the transformation of Banco BPI’s Luanda branch into an Angolan-law bank.
July, 25 BPI presents the results for the first half of the year. Net profit was EUR 70.8 million, giving a ROE of 14.9%.
38 Banco BPI | Annual Report 2002 July, 25 BPI SGPS’ Management Board announces the Group’s restructuring project to be concluded in 2002.
October Banco Português de Investimento absorbed via merger BPI Dealer – Sociedade Financeira de Corretagem. For accounting purposes, the merger produced effects as from 1 January 2002.
Constitution of BPI Suisse, S.A., a company providing Private Banking services, with BPI owning 99.9% of the capital.
October, 24 BPI presents the results for the nine months ended 30 September. Net profit stood at EUR 97.6 million, giving a ROE of 13%.
October, 31 Banco BPI holds a press conference unveiling the Novo Balcão BPI (new BPI branch model), based a new concept of Customer service which contemplates an ample automated zone that is easily accessible and available 24 hours per day, and a personal attendance area that offers the Customer greater privacy and comfort.
November Prize for the best Annual Report and the best Corporate Governance report – BPI was distinguished with the prize for the best Annual Report in the financial sector for the 7th time (second consecutive year), as well as the prize – the first time to be awarded – for the best Corporate Governance Report of all the companies listed on the Euronext Lisbon stock market.
November, 8 The General Meeting of BPI SGPS, at which shareholders were present or represented holding 60.4% of the voting rights, unanimously approves the BPI Group’s proposed restructuring with the object of simplifying and adjusting the Group’s legal configuration to its present business model, as well as procuring additional costs savings and efficiency gains through the rationalisation and concentration of operating activities.
December Conclusion of the BPI Group’s restructuring, with the relevant deed being signed on 19 December. The process culminated with the incorporation of Banco BPI into BPI SGPS which, simultaneously, assumed the corporate object of a commercial bank and adopted the name Banco BPI. As a consequence, the reference to BPI shares traded on the Euronext Lisbon’s official quotations market was changed to "Banco BPI" as from 23 December.
Standard & Poor’s, Moody’s and Fitch Ratings confirmed BPI’s "A" rating and maintained the outlook as stable, underscoring the benefits of a much simpler structure and the potential for cost savings flowing from the Group’s restructuring in 2002.
BPI launches the Fundo Caravela – a venture capital fund, with an initial capital allocation of EUR 20 million, whose chief mission is to invest in national small and medium-sized companies. The Fund is managed by Inter Risco and counts upon the participation of the European Investment Fund.
The BPI Group posts a consolidated net profit for the year of EUR 140.1 million, which corresponds to a return on shareholders’ equity of 13.5%.
Report | Highlights of 2002 39 Background to operations
Macroeconomic background Economic performance in 2002, both at the national and By the end of the year, the climate of uncertainty had worsened international levels, fell well short of the expectations not only as a result of heightened geo-political risks, but also prevailing at the end of the previous year. The prospects for due to the persistence of gloomy prospects for the economic growth remained weak, at the same time as the strengthening of economic growth in Europe. Economies which margin for manoeuvring in the policy-making area began to be represent Portugal’s most important markets, such as Germany severely limited. In the US, the intensive recourse to or France, continued to be virtually stagnant. In these monetary and fiscal expansionism engendered some improved countries, as well as in Spain and in the United Kingdom, performance over the short term but exacerbated the external growth of domestic product continued its decelerating trend at imbalance, thereby undermining the dollar’s strength and the the end of 2002 and, in particular in the first-mentioned case, budgetary position. By contrast, in Europe the dominant was at the origin of the deterioration in the respective position was the opposition to the activism in short-term budgetary situation, thereby dissipating even further the economic policies, leading to mediocre growth and even a prospect of a more stimulatory economic policy in 2003. sharp fall in economic agents’ confidence and corporate investment. Despite the unfavourable international climate, Portugal saw itself forced to implement far-reaching budget adjustments, Real GDP growth Year-on-year variation rates provoked by the overshooting in 2001 of the maximum deficit % 6 permitted under the Stability and Growth Pact. The rise in taxes, the reduction of expenses (in particular, investment) and 4 the likelihood of a non-accommodating posture, for example,
2 with regard to new recruits and salaries in the civil service, resulted in a further plunge in consumer and corporate 0 confidence throughout the year.
-2 6 The conjugation of this scenario with the negative effect of the external background led to a new fall in gross fixed capital 4 formation, both in construction and investment. At the same
2 time, private consumption and investment in housing virtually stagnated, while export forecasts were successively revised 0 downwards. In the closing stages of the year, the
-2 unemployment rate rose, partly as a result of the closing down 1998 1999 2000 2001 2002 of foreign companies operating in Portugal’s traditional sectors Upper quadrant Lower quadrant Chart 5 USA Spain Portugal motivated by their quest for increased profitability, notably in Euro Zone France Germany Eastern European markets. Portugal
40 Banco BPI | Annual Report 2002 Portugal is facing a period of structural transformation, whereby markets, will be other crucial elements for the financial the labour-intensive tasks carried out in branches of traditional system’s evolution in coming years. industries will tend to migrate to lower-income countries. At the Banks lending growth same time, residential construction is approximating saturation Year-on-year variation rates % point, while the public sector is no longer in a position to 40 continue absorbing employment. Expenditure on infrastructures will, in the meantime, have to continue in the transport and 30 communications fields, where much has still to be done so that 20 Portugal can take its proper place in the trans-European networks. Such spending should, therefore, ensure that the 10 country has the proper conditions to attract new industrial and service activities or to develop existing ones. 0 1996 1997 1998 1999 2000 2001 2002
Non-financial companies Chart 6 At the same time, public-private partnerships need to be Individuals fostered so as to release the State from the tariffs that have become a burden on the Budget but which cannot, for this In 2002, the unfavourable environment reflected itself reason, cease to be provided, with health care and assistance primarily in the marked deceleration in loans to companies to the aged being paradigmatic in this domain. which, at the end of the year, posted an annual growth rate of 5%, against 13.3% in December 2001. Conversely, loans All this presupposes the economy’s capacity to generate income to individuals, the expansion of which had contracted sharply and wealth. To this end, it needs to attract private investment in 2001, remained steady and even accelerated slightly in in high value-added activities. The stabilisation of budgetary 2002 (10.6% in November against 10.1% at the end of the policy (now being pursued with firm resolve) is a factor in this previous year). arena. The private sector, buoyed by the support of the Bank deposits growth financial system, will have to respond to this scenario in areas Year-on-year variation rates % such as higher and technological learning, scientific research, 16 the funding of pensions or the public-private partnerships 12 referred to earlier. 8
4 This will result in a significant alteration in banking activity, entailing a diminution in the relative weight of property 0 financing, the greater emphasis on personal loans for the -4 purposes of funding, for example, tertiary education, in tandem -8 1996 1997 1998 1999 2000 2001 2002 with the growing importance of capturing long-term funds in Total deposits Chart 7 order to complement pensions. The prevalence of low inflation Term deposits rates assured by the single currency and budgetary discipline, coupled with the further development of the European financial
Report | Background to operations 41 On the other hand, total residents’ deposits tended to uncertainties, none of which herald a benign climate. In stagnate in 2002 (with an expansion rate of 0.3% in Portugal, growth will be subdued in these two years, inflation November) after having decelerated strongly in 2001, thus will abate and unemployment will continue to climb. During denoting a further drop in household savings in the light of the course of 2003, however, the clarification of the global the unfavourable trend in disposable income. situation and the improved outlook in the budgetary arena commencing in 2004 should begin to mark the desired From the standpoint of the financial sector and the evolution turning point for a new period of growth founded on more of the economy, 2002 and 2003 must be viewed as solid supports. transition years, subject also to the major international
Detailed forecasts for Portugal and the euro zone Growth rates in % 2002 2003 Portugal Euro Zone Portugal Euro Zone
BP1 EC2 EC2 BP EC2 EC2
3 1 1 Private consumption 0 : /4 1.0 0.6 /4 : 1 /4 0.9 1.7 Public consumption 1.5 1.4 2.0 -1.0 0.2 1.4
1 1 Fixed investment -5 : -3 -3.5 -1.9 -4 /4 : - /4 -1.0 2.0
1 Exports 1 : 2 2.9 0.7 5 : 6 /2 5.0 4.9
1 1 1 1 Imports -2 /4 : - /4 0.2 -0.7 /4 : 3 /4 1.8 5.5
1 3 1 1 GDP /4 : /4 0.7 0.8 /4 : 1 /4 1.2 1.8 Inflation3 3.7 3.5 2.3 2.4 : 3.4 2.9 2.0
4 1 1 Current account balance -6 /2 : -5 /2 -7.8 0.6 -6 : -4 -6.8 0.7
1) Bank of Portugal, Economic Bulletin, December 2002. Table 5 2) European Commission, Autumn Forecasts, November 2002. The forecasts for exports and imports refer only to goods, while those of the Bank of Portugal include services. 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.
42 Banco BPI | Annual Report 2002 Currency market The euro’s recovery against the American dollar dominated At year’s end, the proactive posture of the North American 2002, with the European currency appreciating 16%. In the authorities, who were more receptive to the progressive period to mid-July, we observed a sharp gain in the abandonment of the "strong dollar" policy, together with the EUR/USD (peaking at 1.014 versus 0.904 in January) potential difficulties of America’s external imbalance due to triggered by expectations of an acceleration in the EMU’s the decline in the inflow of capital into the US, weighed economic revival at a time when the US was facing a crisis decisively against the American dollar. The EUR/USD rate in stock market confidence, leading to a slowdown in the soared to levels above 1.05 at the beginning of 2003, inflow of the foreign capital needed to finance the current revisiting values last seen in October 1999. The American account balance deficit. However, in the third quarter, the authorities’ drive to guarantee the momentum of the European currency’s vigour petered out (the exchange rate economic recovery, resorting to all the instruments of falling to 0.968). The deterioration in global economic monetary policy, coupled with North America’s high external conditions, the recognition of the EMU’s inability to deficit, will tend to sustain the consolidation of the European substitute the US as the motor behind worldwide growth, the currency’s upward movement. However, despite the euro’s escalation in geo-political risks and the widespread increased appreciation being beneficial for keeping inflation in check, aversion to risk favoured the dollar, which benefited from its the debility of the principal European economies and the status of a refuge currency. importance of external demand for ensuring an upturn should prevent the European authorities from welcoming rapid rises
Euro exchange rates in 2002 in the euro above the 1.10 level. JPY USD 128 1.08
124 2 1.04
120 1.00
116 0.96 3 112 0.92
108 0.88
104 0.84 1 100 0.80 Jan.Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
EUR/USD (right-hand scale) Chart 8 EUR/JPY (left-hand scale)
Source: BCE, Reuters. 1) USD fall aided by renewed stock market retreat (0.8578). 2) The euro’s sustained rise above parity (1.0086). 3) The euro resumes its strong trend (0.9871).
Report | Background to operations 43 Money market The early months of 2002 were influenced by the prospect of Important risk factors shroud the consensual scenario of an end to the downward cycle in benchmark rates. Twelve- moderate economic growth and low inflation with uncertainty. -month rates climbed by around 60 basis points (b.p) in the In addition to the geo-political risks and the spectre of high US and by 45 b.p. in Europe, while the three-month rates oil prices which, in turn, are responsible for the fluctuated by a mere 15 b.p., discounting the aggressive hikes postponement of consumption and investment decisions, the in intervention rates. However, throughout the year the declining inflationary tendency, the lacklustre European retreating stock markets (and the attendant adverse impact on economy, constraints on budgetary policy, the declining consumer confidence), in tandem with the downward revision inflationary trend and the euro’s recent appreciation are of growth forecasts in an environment of controlled inflation, conducive to further cuts in the ECB’s refinancing rate during rekindled expectations of further cuts in key rates. Thus, in the first half of 2003. In the US, the monetary authorities November and eleven months after its last cut, the Federal will tend to maintain their policy unchanged. However, a Reserve lowered the fed funds rate by 50 basis points to a possible deterioration in economic conditions and / or military historic minimum of 1.25%. In December, the fragile state of intervention in Iraq (with its unforeseeable consequences) the European economy justified a reduction of 50 b.p. in the could warrant the adoption of additional monetary measures. ECB’s refinancing rate to 2.75%, three months after the Should the dominant economic expectations for 2003 previous cut. In the meantime, American and European six- materialise, the reversal in the present cycle of declining -month rates which in June were situated at 2% and 3.5%, short-term interest rates should not take place before the end respectively, had eased to 1.4% and 2.8% at the end of of the year. However, the anticipation of this movement will the year. tend to induce a progressive rise vis-à-vis interest rates for periods exceeding six months. Six-month interest rates in 2002 % 4.0
3.5
3.0 2 2.5
2.0
1.5 1 1.0 Jan.Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Euribor Chart 9 Libor USD
Source: BPI, Reuters. 1) The FED cuts the fed funds rate from 1.75% to 1.25%. 2) The ECB cuts the refinancing rate from 3.25% to 2.75%.
44 Banco BPI | Annual Report 2002 Bond market The first months of 2002 saw a significant rise in long-term current central backdrop of modest growth. In addition, the interest rates anchored to projections of an acceleration in confirmation of brisker economic activity or the degradation of economic activity. However, the subsequent confirmation of growth prospects tend to lead to a rise in long-term interest waning economic recovery, the financial scandals and the rates owing, respectively, to the dissipation of prospects for sliding stock markets precipitated an important flight to further declines in short-term interest rates or the projections quality. Benefiting from public debt’s status as a safe haven, for debt supply rise as a result of the worsening of public the yields registered further falls to new cycle lows. In the deficits. In Europe, the fact that public debt has not attained US, yields on 10-year paper, which in January touched excessive proportions, coupled with the greater likelihood of 5.13% and climbed to 5.5% in March, had slipped to 3.6% further cuts in key rates, tend to induce lower yields. Hence, in September, being situated at 3.80% at the end of the during 2003 there may be a decrease or even a reversal in the year. In Europe, the trend was similar with 10-year rates present negative spread between North American and oscillating between 5.30% in January and 4.20% in European debt. In reality, this differential in 10-year rates, December. In terms of the yield curve’s slope, the early which was situated at 17 b.p. at the beginning of 2002, months of the year were characterised by its flatter profile, dropped to -40 b.p. in December after having attained a after which curves tended to move in an upward direction. minimum of -72 b.p. in October. Turning to the rates differential between Portuguese and German public debt Ten-year interest rates in 2002 (10-year stock), it should be pointed out that during the % 6.0 course of 2002 the spread narrowed progressively from 30 1 b.p. in January to 13 b.p. by year’s end, with this trend 5.5 expected to stabilise or even decrease slightly during 2003.
5.0
The miscellaneous debt market has been progressively 4.5 gaining more importance, with these instruments serving as 4.0 substitutes for investments in equities in periods of greater 2 3.5 aversion to risk, benefiting from the advantage of offering a Jan.Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. steady income stream and capital gains when there are Portugal (EUR) Chart 10 Germany (EUR) perceptions of improvements in companies’ abilities to meet USA (USD) their commitments. According to Standard & Poors’, a total of Source: BPI, Reuters. 194 defaults were recorded in 2002 while the credit ratio 1) Maximum (high) = 5.44%; Expectations of strong economic revival. 2) Minimum (low) = 3.59%; Weak growth, falling (tumbling) stock market (relationship between downgrades and upgrades) reached 4.2, and low inflation. which compares favourably with 5.1 in 2001. However, notwithstanding the considerable number of defaults and The North American public-debt market remains vulnerable to widely-publicised bankruptcies, the credit risk premiums fell the extent that the yields on maturities for periods shorter than appreciably at the end of the year, essentially due to the five years presuppose the crystallisation of a deflationary lower aversion to risk, the growing optimism regarding scenario in the next few years, a situation not reflected in the corporate earnings and the prospects of adjustments to
Report | Background to operations 45 companies’ capital structures. In 2003, despite the Equities market anticipation of continuing high default levels, companies are In line with what happened in 2000, 2001 was negative for expected to continue favouring cost rationalisation and debt- the world’s (including Portugal’s) stock markets. Despite a -reduction policies, focusing on the consolidation of the promising start to the year in anticipation of an upturn in the movement to crush credit risk premiums. world economy in 2002, the principal international bourses ended the year in negative territory, reflecting: Credit risk premiums in 2002 Euro-denominated issues b.p. 250 – the successive downward revisions to corporate earnings;
200 – the retraction in consumer and investor confidence indicators, 150 the latter in the wake of numerous financial fraud cases,
100 particularly in the US;
50 – the lower values of insurance companies’ investment
0 portfolios, leading in certain cases to the need to their Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. recapitalisation via the injection of funds; BBB Chart 11 A AA – the deterioration in the debt-risk ratings of the world’s leading AAA companies; Source: Goldman Sachs, Bloomberg.
– ongoing global geo-political instability after September 11 2001 and the outbreak of the Iraq crisis;
– the rise in raw material prices, in particular, crude oil;
– and in the particular case of the Iberian Peninsula, the situation in Latin America (economic turmoil in Argentina and presidential elections in Brazil), as well as Portugal’s macroeconomic situation.
46 Banco BPI | Annual Report 2002 The Portuguese stock market posted a negative performance for Main international stock market indices in 2002 the third consecutive year. The PSI-20 index shed 26% in the 120 period. It is interesting to note that the PSI-20 at the end of 110 2002 was just 12% higher than its value in December 1996, 100 which translates itself into an annual average return of a mere 90 2% (excluding dividends). The end result is that the losses of the last three years have practically wiped out the gains of the 80 previous three years. This phenomenon is very much in line 70 with the evolution observed in other developed markets. 60 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Standard & Poor's 500 Chart 12 PSI-20 Dow Jones STOXX 600 Banks Dow Jones STOXX 600
Equities market indices 1997 1998 1999 2000 2001 2002 CAGR1 97 / 02
PSI-20 71% 25% 9% (13%) (25%) (26%) 2% Ibex 35 41% 36% 18% (22%) (8%) (28%) 3% Eurostoxx 50 37% 32% 47% (3%) (20%) (37%) 4% Dow Jones 23% 16% 25% (6%) (6%) (17%) 5% Nasdaq 22% 40% 86% (39%) (20%) (32%) 1%
Source: Bloomberg, BPI. Table 6 Note: local currency indices. 1) Compounded Annual Growth Rate.
The Portuguese stock exchange’s liquidity mirrored the In Europe, the principal primary market operations were market’s lacklustre performance. The average daily volume chiefly directed at reinforcing the share capitals of certain was situated at EUR 87 million, down 32% on the 2001 listed companies and the sale of investments held by average. This fact is even more cause for concern bearing in companies experiencing financial difficulties. The total value mind that the average volume in 2001 had already suffered of primary market operations in Europe fell 28% relative to a plunge of 45% relative to 2000. 2001 to EUR 66 billion, with secondary offerings (including capital increases) representing 78% of this figure. In the 2002 saw no primary market operations in Portugal, year under review, the only important initial public offerings reflecting the lack of investor confidence and the change in were in defensive sectors (the privatisation of a motorway- government which, in turn, was responsible for the delay in -concession operator in France – ASF, and the IPO of a some privatisation operations, notably, Portucel and Galp natural-gas infrastructure company in Spain – Enagas). Energia.
Report | Background to operations 47 Domestic Commercial Banking
INDIVIDUALS AND SMALL BUSINESSES BANKING
Banco BPI’s Individuals and Small Businesses Banking was Individuals Banking and Small Businesses principal indicators responsible for loan portfolio totalling EUR 8 956 million 2001 2002 ∆% and resources of EUR 13 868.2 million at the end of 2002. Loan portfolio (M. euro) 7 557 8 956 18.5% Total Customer resources (M.euro) 13 488 13 868 2.8% The annual rate of growth in 2002 was 18.5% for loans and Customers (million) 1.3 2.8% for resources. Internet and telephone banking Customers1 (thousand) 290
1) Subscribers with altered password. Table 7
In 2002, Individuals and Small Businesses Banking benefited from a considerable number of changes that were responsible for the improvement in the functioning and support model providing management information to the branch network, as well as for the intensification of the commercial network’s rationalisation.
Structural alterations at Individuals Banking The reorganisation of the individuals and small businesses The management of Customer resources has now been network involved an increase in the number of first-line transferred to a single structure which integrates all the personnel responsible for the handling of these business investment product "factories". This new structure’s prime operations, as well as the launching midway in the year of objectives are the following: BPI’s Investment Centres. This network is specifically geared to high net-worth or potentially wealthy Customers – a segment – to manage in a dynamic and integrated manner the range of regarded as a priority pillar for Banco BPI’s growth strategy. By the Bank’s liabilities-side products, adapting these to market the end of June 2003, the network will comprise a total of conditions and Customers’ needs; eight Centres: two in Lisbon, two in Oporto and one respectively in the cities of Aveiro, Braga, Coimbra and Leiria. – to improve Customer service, contributing to the provision of advisory services tailored to the various profiles of investors; The Individuals and Small Businesses Marketing Division was split into two divisions – Strategic Marketing and Operational – to improve the support given to the branch network by way of Marketing – with the object of improving the commercial a training and sales support team with involvement in a process so as to better cater for Customers’ needs. The range of products under its responsibility, in such a way as to Strategic Marketing Division will focus on Banco BPI’s ensure commercial message coherence; Customer relationship management, while the Operational Marketing Division will assume total responsibility for the – to optimise internal and external communications relating to coordination of sales at Individuals and Small Businesses liabilities-side products, with the aim of ensuring greater Banking. clarity and transparency in the information destined for Customers, and better preparation of sales staff for their functions.
48 Banco BPI | Annual Report 2002 Intensification of rationalisation processes The migration of operations to automatic channels led to a During the course of 2002, rationalisation of the commercial reduction in the number of transactions effected at the network led to the closure of 25 branches, bringing the total branches and which, in line with the simplification of number of traditional BPI branches to 483. processes, paved the way for enhancing the profitability of operating processes and boosting sales. Contributing to the simplification of processes was the installation of cash dispensers at 40 branches and extending The installation of intelligent deposit machines at 51 branches the centralisation of telephone calls to 279 branches, which resulted in an average transaction migration of more than corresponds to an increase of 19% over 2001. 50%. The cheque-dispensing machines installed at just three branches made possible an average migration rate of some Improvement in management information 90%, with the result that this type of equipment is scheduled With the goal of upgrading the quality of management to be installed at a further 50 branches by the end of 2003. information transmitted to the commercial network, a Management Information site was launched on the Bank’s BPI Net and BPI Directo also contributed to reducing the intranet that will permit the daily monitoring each branch’s volume of transactions carried out at the branches, with some portfolio, the placement of products, sales campaigns and the 150 and 290 thousand Customers, respectively, having results obtained in the incentives and motivation system at adhered to these virtual channels. Individuals and Small Businesses Banking.
The operational rationalisation drive also encompassed the renovation of a further 24 branches where there are now fewer physical barriers between the Customer and bank staff and, consequently, leading to greater interaction which is conducive to improved productivity and service quality. Moreover, all these branches have 24-hour zones which are equipped with ATMs, intelligent deposit machines, access to all of BPI’s sites via the Internet, and access to BPI Directo. This branch renovation process commenced in September 2001 and will be extended to 100 branches by the end of 2003.
Report | Domestic Commercial Banking 49 LOANS TO CUSTOMERS The portfolio of loans to individuals and small businesses above all to the expansion of the mortgage loan portfolio, expanded by 18.5% in 2002 to EUR 8 956 million, due which posted an annual growth rate of 26.6%.
Individuals and Small Businesses Banking – loans to Customers Amounts expressed in millions of euro 2001 % 2002 % ∆% Mortgage loans 5 144.6 68.1% 6 512.1 72.7% 26.6% Personal loans 493.4 6.5% 451.3 5.0% (8.5%) Credit cards1 132.5 1.8% 138.1 1.5% 4.2% Loans to small businesses2 1 284.7 17.0% 1 317.4 14.7% 2.5% Car finance3 194.1 2.6% 215.1 2.4% 10.8% Equipment and property leasing3 307.3 4.1% 321.9 3.6% 4.7%
Total 7 556.6 100.0% 8 956.0 100.0% 18.5%
1) Includes outstanding credit of non-Bank Customers, i.e. holders of credit cards co-issued by BPI. Table 8 2) Includes commercial loans and guarantees given. 3) The figures refer to 20 December 2002.
Home loans The volume of mortgage-loan contracting attained EUR It should be highlighted that in response to the unfavourable 1 934.6 million in 2002 (7.4% more than in 2001), thereby evolution of the economic landscape, BPI adopted a more allowing BPI to reach a market share of 12.3% in new conservative approach with respect to its loan approval business contracted and secure an accumulated share of criteria, especially as concerns the relationship between the 9.3%, up 0.8 p.p. on December 2001. amount financed and the associated security, which is now subject to a maximum ceiling of 90%. Individuals and Small Individuals and Small Businesses banking loans Businesses banking and guarantees1,2 mortgage loans Bi.€ Bi.€ The contribution from the channels specialising in mortgage 10.0 8 finance – Housing Areas at the branches, Housing Shops and 9.0 the Estate Agents Channel – was instrumental in the above- 6.5 7.6 mentioned performance, bearing in mind the annual growth 7.5 6 5.1 rates registered in annual contracting of 39%, 20% and 5.9 37% respectively. 5 4 3.8 4.3 3.4 2.8 New mortgage loans contracted by specialised channels Amounts expressed in millions of euro 2.0 2.5 2 2001 2002 ∆%
Housing Areas 247.7 344.0 38.9% Housing Shops 124.1 149.4 20.3% 0 0 98 99 00 01 02 98 99 00 01 02 Estate agents 233.3 320.1 37.2% Table 9 1) Performing loans. 2) Includes leasing and long-term rental (LTR). Chart 13 Chart 14
50 Banco BPI | Annual Report 2002 During the course of 2002, BPI continued to reinforce its at www.bpinet.pt as to whether their loan applications have position as a specialist in home loans, backed by a been approved. dedicated network of 18 Housing Shops and 64 branches with special home-loan counters (11 more than in 2001). Following the alteration in September to the Subsidised Home Loan Regime and the Youth Subsidised Home Loan Regime, BPI also consolidated its prominent market position in that is, in the wake of the extinction of State subsidies for Internet operations through its site BPI Imobiliário – the loans contracted with effect from 30 September, BPI adapted country’s largest on-line real estate and property the product. This entailed extending the loan term to 50 years, developments database – which now boasts 1 200 partners although imposing a limit of 70 years of age for applicants at and 200 thousand property announcements (up 67% and the end of loan period, at the same time fixing specific limits 45% respectively). An average of 1.9 million page views per for the maximum ratio between the amount financed and the month was recorded in 2002. underlying security. In December, around 20% of applications already involved loan terms in excess of 30 years. In the wake of the good results obtained by the channels specialising in mortgage finance, BPI started in September Motor car finance the third phase of the expansion of Housing Areas at the Motor car finance advanced to individuals and small branches – with the projected opening of 15 new dedicated businesses totalled EUR 215.1 million at the end of 2002, counters. This initiative saw the inauguration of two new 10.8% more than in December 2001. This result is Housing Shops (in Viseu and in the Almada Forum Shopping particularly positive if one considers that motor car sales in Mall), as well as the signing of more protocols with real the national market registered a fall of more than 13% in estate agents. the period under review.
At the same time, there was growing adherence to the Cards services associated with BPI Home Loans, in particular, to At the end of 2002, the number of cards placed with Banco the Documents Service, which attracted 60% of Customers BPI Customers exceeded 716 thousand debit cards and in 2002, who benefited from the professional support and 375 thousand credit cards. There was an increase of 7.8% greater speed in the contracting process. in relation to 2001 as a result of the 10.1% increase in the number of debit cards and 3.6% in the number of credit BPI is, therefore, the only bank in Portugal to make available a cards, giving BPI a market share of 9.4%. In billings, network composed of 82 easily-accessible points of sale, there was also a positive trend in both card categories: offering specialised and exclusive services in mortgage finance. Eur 2 464 million in debit cards, corresponding to a rise of 19.3%, and EUR 695 million in credit cards, corresponding In order to speed up the communication of loan decisions to to an increase of more than 7%. Customers, the use of scoring at the Loan Process Management System – GPC Home loans – was consolidated. This system allows Employees at the branches, telephone banking and virtual (Internet) banking, to inform Customers
Report | Domestic Commercial Banking 51 CLIENTS RESOURCES The overall increase in Customer resources was positively The volume of capitalisation insurance subscriptions rose by influenced in 2002 by the trend in off-balance sheet 106% when compared with 2001, with the respective resources which recorded annual growth of 3.9%. amount contracted in 2002 totalling EUR 207 million.
This in turn is primarily due to the 21% growth in the capitalisation insurance portfolio.
Individuals and Small Businesses Banking – Customer resources1 Amounts expressed in millions of euro 2001 % 2002 % ∆% Balance sheet
Sight deposits 2 609.4 19.3% 2 594.4 18.7% (0.6%) Time deposits 5 696.3 42.2% 5 904.0 42.6% 3.6% Interest-bearing bonds 491.6 3.6% 585.3 4.2% 19.1% Equity linked structured products 853.4 6.3% 796.1 5.7% (6.7%) Subtotal 9 650.7 71.5% 9 879.7 71.2% 2.4% Off-balance sheet Unit trust (mutual) funds 1 982.4 14.7% 1 983.0 14.3% 0.0% Retirement and equity savings plans 1 105.9 8.2% 1 095.9 7.9% (0.9%) Capitalisation insurance 749.1 5.6% 909.7 6.6% 21.4% Subtotal 3 837.4 28.5% 3 988.5 28.8% 3.9% Total Customer resources 13 488.1 100.0% 13 868.2 100.0% 2.8% 1) Does not include securities portfolio. Table 10
The portfolio of unit trust (mutual) funds placed with Individuals and Small Businesses banking Individuals and Small Businesses Banking Customers Customer resources € attained in December 2002 an amount of close to Bi. 16 EUR 2 billion, unchanged from the figure at the end of 13.5 13.9 2001. This performance meant that the BPI Group had the 12.4 12 11.7 fourth biggest market share (16.9%) at the end of 2002. 10.9 As regards the value-added funds – funds with interest-rate, currency and equities risk – BPI achieved a market share of 8 19.8%, giving it second place in the ranking.
4
0 98 99 00 01 02
Off-balance sheet resources On-balance sheet resources
Chart 15
52 Banco BPI | Annual Report 2002 BPI Net and BPI Directo for individuals Availability of information The number of users of Banco BPI’s homebanking service for The increase in the amount of information available via the individuals – BPI Net and the telephone banking service BPI remote channels – Sites and Information Lines –, was another Directo – continued to register growth. Innovations during the crucial factor behind the increase in Customer relationship year included the launching of new functionalities in the Cards activity in 2002, as evidenced by the following statistics: and Payments areas. In quantitative terms, the key year-end – 13.2 million pages visited (refers to all BPI sites); figures were as follows: – 200 thousand properties available at the site BPI Imobiliário; – 290 thousand active subscribers to BPI Net / BPI Directo – 735 thousand emails sent to subscribers of Alert Service at services; the site BPI Imobiliário; – 150 thousand regular users at BPI Net; – 15 thousand requests to visit properties made via the site – 650 thousand visits per month1 to BPI Net; BPI Imobiliário (in 2002) and forwarded to the Real Estate – 1.6 million transactions per month1 through BPI Net; Partners, principally Estate Agents. – 67% of the Bank’s stock exchange operations are effected via BPI Net; In respect to BPI Directo service, worth mention: – 2.2 million calls received through BPI Directo; – availability of specific information lines for loan products – 7.8 thousand calls received on average per weekday through (Home Loans, Consumer Credit, Motor Car Finance), unit BPI Directo; trust funds; investment products and internet sites. – 77% of the calls received are attended in less than 20 – 83 thousand calls received on the information lines. seconds at BPI Directo; – 66% of the calls received at BPI Directo are dealt with by the automatic attendance mode;
BPI Net and BPI Directo BPI Group sites Subscribers with altered password1 Pages viewed1 Thousand Million subscribers pages 320 16 292 284 276 271 259 13.2 250 240 230 233 12 220 208 9.8 9.4 9.4 8.8 7.7 160 146 8 6.3 6.6
82 4.3 4.4 80 4 2.9
1.2
0 0 Mar.Jun.Sep. Dec. Mar. Jun.Sep.2Dec.Mar Jun. Sep. Dec. Mar.Jun.Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec. 00 01 02 00 01 02
1) A single contract and password, valid simultaneously for BPI Net and BPI Directo. 1) By month. 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.
Chart 16 Chart 17
1) December 2002.
Report | Domestic Commercial Banking 53 Concentration of call attendance at the Call Centre New BPI Branch In this domain, work continued on the process of centralising The New BPI Branch explores and evolves the concept of the telephone calls to the Branches and other BPI Areas and branch as a privileged place for fostering contact with the Customer Companies at the Call Centre, leading to: with a view to promoting sales. The new layout affords ideal conditions for personalised attendance, and offers the Customer – extension to 279 branches (more than 50% of the total privacy and comfort. The new-look branch also has a fully- number of Banco BPI branches) of the centralised call -automated section that is easily accessible 24 hours a day, where system. This system redirects to the Call Centre the calls to Customers can avail themselves of a wide range of banking service the branches made by Customers who have no account and operations at their leisure and convenience, and benefiting manager. During 2002, some 315 thousand such calls were from an attractive pricing, thereby stimulating the migration of low transferred to the Call Centre. It is worth pointing out that value-added transactions to the alternative channels. this project contributed very positively to raising the commercial network’s efficiency. It enabled branch staff to The attendance zone is designed to provide greater interaction devote more time to Customers’ affairs, as well as to the with the Customer – through the removal of virtually all physical execution of commercial initiatives. In parallel, Customer barriers – and a one-to-one interaction in the more time- satisfaction improved appreciably as a result of the much -consuming and / or complex banking operations, while offering shorter waiting period before being attended; the Customer more privacy and comfort. The automatic zone is – broadening of the Call Centre’s sphere of activity, leading to made up of last generation equipment which permits the access the integration of other attendance services, both internal to a vast array of banking services and operations: and external, notably: – integration of the attendance team giving support to the – an Internet space providing access to BPI Net – Banco BPI’s branches; homebanking service – and, therefore, the opportunity to take – integration of the attendance service for BPI Rent advantage of practically all the Bank’s products and services, Customers. as well as access to the BPI Group’s other sites; – the BPI Directo service, the telephone banking service which Sale of Products and Services permits, besides consultations, the carrying out of more 2002 saw sales activity via the Telephone maintain its involved transactions, such as the payment of services or the intensive rhythm – more than 2 million telephone contacts with execution of stock market operations; Customers were made –, with sales promotion by Email being – cheque distribution and processing machine, which introduced in the last quarter, during which period more than dispenses immediately crossed cheques and has the 200 thousand Customers were contacted through this medium. following additional functionalities: cheque requisitions and cheque deposits which are immediately receipted and Integration of Divisions recorded in accounts, account transfers and consultation of Within the ambit of the BPI Group’s reorganisation, the last account movements and NIB. quarter of 2002 witnessed an important rationalisation of the – intelligent deposit machine, which certifies and immediately three Divisions responsible for the management of the Remote records the movements in the Customer’s account; Channels, culminating in the integration of the BPI Internet, – automatic teller machine (ATM) Telephone Banking and Electronic Banking Divisions into a single unit; the New Channels Division. Banco BPI’s new branch model is being implemented in a gradual fashion. At the end of 2002, 24 branches had been remodelled, with this figure expected to reach 100 units by the end of 2003.
54 Banco BPI | Annual Report 2002 CORPORATE BANKING, INSTITUTIONAL BANKING AND PROJECT FINANCE
The trend in Corporate and Institutional Banking’s loan and Corporate Banking, Institutional Banking and Project Finance loans and guarantees Amounts expressed in millions of euro guarantee portfolio in 2002 was affected by the increased 2001 2002 ∆% selectivity in lending, subordinated to stricter criteria as Loans and guarantees regards the return on shareholders’ equity and attendant risk, Wholesale Banking 4 214.0 3 622.6 (14.2%) in tandem with the strategy aimed at the concentration of Large companies 2 416.0 2 275.6 (5.8%) lending activity in the domestic market. Medium-sized companies 2 292.0 2 239.6 (2.3%) Project Finance 383.7 623.2 62.4% Institutional Banking 422.0 569.0 34.8% This policy had a greater impact on the reduction of loan Loans and guarantees 9 727.7 9 329.9 (4.1%) and guarantee portfolios relating to the wholesale and large Leasing, Factoring and LTR 785.9 810.9 3.2% companies’ segments, which was partially offset by the Total 10 513.6 10 140.8 (3.5%) activity expansion in Project Finance and Institutional Table 11 Banking business. The loan and guarantee portfolio fell by roughly 4% in 2002. The total resources taken by Corporate Corporate Banking, Corporate Banking, Institutional Banking and Banking amounted to EUR 1 682 at the end of December Institutional Banking and Project Finance loans and Project Finance Customer 2002, 1.7% higher than in December 2001. At the same guarantees resources time, it is worth noting the growth of around 12% in Bi.€ Bi.€ commissions received from Customers. 12 2.4
9.6 9.3 9.3 9 1.8 1.7 1.6 1.7
6.5 6 5.5 1.2 1.2
0.9
3 0.6
0 0 98 99 00 01 02 98 99 00 01 02
Guarantees Loan portfolio
Chart 18 Chart 19
Report | Domestic Commercial Banking 55 Physical network Virtual channels Corporate Banking, Institutional Banking and Project Finance During 2002 the Electronic Banking service for Companies manage in an integrated manner the Bank’s relationship with continued to expand in terms of the number of users, reaching some 14 thousand BPI corporate and institutional Customers around 4 300 active Customers and recording a monthly1 and the respective product range. Following the autonomy of figure for payments and collections of EUR 840 million. the Wholesale Banking area in the second half of 2002, Customers have been separated into five segments in In tandem with this growth, Banco BPI prepared the launching accordance with their respective business turnovers – of a new service – BPI Net Empresas – a Web solution that will Wholesale Banking, Large Companies and Medium-sized become operational in the first quarter of 2003. Companies –, and according to their specific business mission – Project Finance and Institutional Banking –, with the For Banco BPI Customers, the service is much simpler to use overriding objective of tailoring the Group’s products and and offers a greater number of functionalities. For Banco BPI, services to each segment’s characteristics and requirements. because the new platform is supported by the same Corporate Banking and Institutional Banking have their own infrastructure as that of BPI Net and BPI Directo to dedicated commercial networks – the corporate and individuals, it creates synergies that result in cost savings in institutional centres – which ensure proximity, concentration terms of development and maintenance. and efficiency in the service offered to Customers. The Project Finance area is dedicated to the organisation, mounting and participation in project finance operations and public-private partnerships, as well as in other structured finance deals.
Physical network Virtual channels
Customers Centres (no.)
Wholesale1 4 BPI Net Empresas www.bpinetempresas.pt Large companies2 7
Medium-sized companies3 44 BPI Electronic bank
Project Finance 1
Institutionals4 5
1) 70 biggest business groups. 2) Turnover above EUR 25 million. 3) Turnover between EUR 1.25 million and EUR 25 million. 4) Local authorities, autonomous regions, social security system, universities, public utility associations and other non-profit entities.
1) In December 2002.
56 Banco BPI | Annual Report 2002 WHOLESALE BANKING, LARGE AND MEDIUM-SIZED Of the commercial activity conducted in 2002, the following COMPANIES operations merit special mention: Created in the first half of 2002, the Wholesale Banking Division manages a commercial relationship with the – adjudication by Carris of a mandate to BPI, jointly with the 70 biggest business groups through its 4 corporate centres. La Caixa Group and Depfa Bank, for the mounting, Large Companies Banking, directed at the segment where organisation and underwriting of a EUR 100 million bond corporate Customers have turnovers in excess of EUR issue guaranteed by the State; 25 million, is supported by a network of 7 specialised centres. The Medium-sized Companies Banking area – – advising REFER in the analysis of proposals and mounting whose exclusive network of 32 centres (and 12 additional of medium and long-term structured financing in the specialised areas at the retail branches) ensures it national amount of EUR 500 million, including giving support in coverage – caters for companies with annual sales of the "shadow rating" process in association with two of the between EUR 1.25 and EUR 25 million. world’s leading rating agencies.
At the end of 2002, the creation of the Credit Risks Division Investment support started the process of granting autonomy to the risk- BPI maintained its prominent position in lending support for -management function in the large and medium-sized productive investment in 2002, having signed protocols and companies segments. This functional specialisation seeks negotiated credit lines earmarked for supporting the funding to create the conditions for the intensification of the of investment and development projects. commercial activity undertaken by the network dedicated to these segments. Protocol within the ambit of the Programa Operacional da Economia The slowdown in economic activity and the consequent Banco BPI has had an extremely active involvement in the deterioration in the corporate world’s operating conditions launching and dynamic promotion of the Programa led to greater selectivity in the Bank’s lending policy, with Operacional da Economia (POE – a programme offering particular emphasis on the large business groups and major financial grants for business investment projects). In this companies. This policy privileged the Customers with whom context, the bank signed a protocol for the reception and the Bank can foster an in-depth and more encompassing financing of candidatures to the Sistema de Incentivo à relationship, thereby contributing to profitability increase Modernização Empresarial (SIME – incentive scheme for boosted by the selective lending policy pursued. business modernisation) and organised a gathering of some 800 businessmen for the purpose of disseminating the The volume of the ALD, factoring, real estate and equipment Programme. Banco BPI was indicated as the support bank in leasing portfolio in the corporate segment totalled EUR some 25% of the grant applications submitted under the 735.9 million at the end of 2002. SIME programme to the coordinating bodies until the end of 2002.
Report | Domestic Commercial Banking 57 Protocol with the Instituto de Financiamento e Apoio ao Turismo EIB and KFW credit lines A protocol was signed at the end of the year with the A new credit line was contracted with the European Instituto de Financiamento e Apoio ao Turismo (IFT – an Investment Bank (EIB) for a global amount of EUR 50 institute providing finance and support for tourism) setting million. Furthermore, a new line totalling EUR 100 million up a credit line of EUR 50 million for supporting companies was contracted with the KFW. in the tourism sector.
EFTA Fund The EFTA Fund for the Industrial Development of Portugal Since the 6th year of its activity the EFTA Fund has generated ceased its activity on 31 January 2002. funds which permitted reimbursing and providing an adequate return on the investment made by the Contributor States. At During its 25-year existence, the Fund contributed decisively to the time of its extinction and in terms of its statutes, the EFTA the modernisation of Portugal’s manufacturing capability. Fund handed over to the Portuguese State net assets worthing about EUR 150 million more. Starting with an amount of USD 100 million placed at Portugal’s disposal by the Contributor States, the Fund supported 1 747 At the beginning of the year, Banco BPI acquired from the projects on the mainland and in the Autonomous Regions Portuguese State the EFTA Fund’s loan portfolio, which was (Madeira and the Azores) providing some EUR 789 million, and then incorporated into the Bank’s company loans portfolio. was responsible for the creation of more than 14 000 new jobs. The closure of the Fund’s activity was marked by the final Principal indicators of the EFTA Fund's global activity meeting of the Steering Committee in Lisbon and a ceremony No. of projects financed 1 747 attended by representatives from the Portuguese government Amount financed (EUR million) 789 and the Contributor States who have been associated to the Investment amount (EUR million) 3 082 Fund’s creation in 1977, as well as from other entities that No. of work positions created 14 414 contributed to the success of its functioning. No. of work positions stabilised 174 000 Accumulated results (EUR million) 150
Table 12
58 Banco BPI | Annual Report 2002 PROJECT FINANCE In Portugal, 2002 was characterised by an slowdown in the In the sphere of public-private and public administration rhythm of new infrastructural projects launched. This partnerships, the following initiatives warrant special deceleration can be ascribed on the one hand, to the reference: domestic political and economic situation that led to the holding of elections in March and the implementation by the – consultancy services to Parcerias.Saúde (Ministry of new government of a restrictive budgetary and financial Health), with a view to defining and structuring a public- policy, and on the other, to the weak economic growth. -private model to adopt within the scope of the programme approved by the government for the construction of ten Notwithstanding this unfavourable scenario, the portfolio of new hospitals; loans contracted in the form of project finance grew by 32% in 2002 to around EUR 950 million. BPI continued to mark – financial advisory services rendered to the Azores regional a strong presence in the project finance market in Portugal. government for the structuring, launch and negotiation of Amongst the most noteworthy operations were the structuring the motorway concession on the island of São Miguel. At and mounting (in its capacity as lead arranger) of the the present moment, the bids submitted under the financing required for the extension of the Vialitoral respective international public tender are being appraised; concession under the virtual toll regime on the island of Madeira, and the support given to the MTS Consortium – financial advisory services provided to the IGA – (comprising the Barraqueiro Group, Siemens, MotaEngil, Investimentos e Gestão da Água, the entity responsible for Teixeira Duarte and Sopol), winner of the tender for the the supply of high-level water in the autonomous region of construction, operation and maintenance of the Tejo South Madeira, for the purpose of studying alternative models for Bank light-rail system, and to Ferrovial in the tender organising and structuring the water-supply sector in the integrated in the National Roads Programme for the Greater region; Oporto district. – financial advisory services provided to the Administração BPI’s Project Finance area also bolstered its activities in the do Porto de Lisboa (Lisbon Port Authority) within the ambit structuring of public-private partnerships and in the of the concessions entered into its area of influence. conception of structured finance solutions for the administrative and business public sector, in close collaboration with the Institutional Banking and Wholesale Banking areas.
Report | Domestic Commercial Banking 59 As regards the Bank’s involvement in the structuring and On the international front, the highlight was the provision of mounting of financial restructurings and financing solutions financial consultancy services in Angola to the Luanda in the Public Business Sector, the most noteworthy Provincial Government within the ambit of the structuring of operations were the participation at various levels in the a public-private partnership model in the sector for the organisation and mounting of financing of the new football collection, transportation and treatment of solid waste and stadiums for the Euro 2004 tournament; consultancy work to sanitation in association with the GIBB, and BPI’s CLC Madeira (Galp Group) for the structuring and mounting participation in the syndication phase of the following of financing the project for the installation of a logistical fuel financing deals: facility in Madeira; and furthermore, the permanent financial advisory mandates to Transgás (monitoring and updating the – Infraspeed B.V., concessionaire of the High Speed Link concession’s economic and financial model) and to AdP railway project (connection between Amsterdam and the (support in the structuring of the finance for the multi- Belgium border and an integral part of the Trans-European -municipal systems, with special reference to the Network), promoted by Holland in a public-private negotiations with the European Investment Bank). partnership / project finance regime;
In the municipal arena, BPI pursued its activity directed at – Tubelines, concessionaire responsible for the renovation supporting and advising several municipalities, namely, in and maintenance of three London underground lines. the conduct of studies and involvement in the negotiations with municipal service concessionaires, in particular, those in the water and sanitation sector, as well as support for the structuring of urban re-grading and conservation programmes.
60 Banco BPI | Annual Report 2002 INSTITUTIONAL BANKING BPI’s Institutional Banking Division concentrates on the sale year given the growth noted in Institutional Banking’s via the commercial network of specially-designed financial Customer base. products and services to meet the needs of local authorities, Autonomous Regions, Central Administration services and In 2002, BPI lead-managed a series of important operations, institutes, including Universities and the Social Security amongst which the following: Department, public utility associations and other non-profit entities. Its activity is backed by a network comprising five – a long-term structured loan of EUR 80 million to the institutional centres – North, Centre, South, Madeira and the Lisbon Municipal Council made by BPI jointly with Azores. In 2002, BPI paid special attention to the quality of Invercaixa (of the La Caixa group) – as lead managers –, its services, thereby enabling it to consolidate its image and Depfa Bank and Caixa Galicia, which won the biggest broaden its Customer base. The portfolio of loans (including municipal loan operation of 2002 in an international leasing and factoring) and guarantees conceded by tender. This group of banks was responsible for the Institutional Banking expanded by 38% in 2002 to EUR operation’s mounting, organisation and underwriting; 643.6 million, while resources taken totalled EUR 198.5 million. – advising in the updating of the Lisbon Municipal Council’s international rating and in the Autonomous Region of In the present context of curbs on local finances, the Bank Madeira’s procurement of an international rating and the gave priority to identifying cooperation opportunities which reception of new advisory mandates in the attribution of permit local authorities to maintain to the extent possible an international ratings for the municipal councils of Oporto, adequate level of service quality to citizens and the normal Sintra and Vila Nova de Gaia; realisation of investment projects under way. – medium and long-term loan operations involving large The loans advanced and guarantees issued – associated in amounts for the financing of social housing projects under particular with the investment made by local authorities the III Community Support Framework, as well as for major under the 3rd Community Support Framework and social municipal works forming part of the Euro 2004 event – housing projects – maintained a positive evolution, with a the European Football Championship, currently being substantial increase being observed in leasing and factoring undertaken by the country’s main local authorities. activity.
The attraction of resources was naturally affected by the progressive realisation of legal enactments which attribute to the Directorate-General for the Treasury the role of the "State’s Bank", responsible for the direct management of the Central Administration’s financial resources and the State’s funds and autonomous services. Despite these factors, the movement remained stable in comparison with the previous
Report | Domestic Commercial Banking 61 International Commercial Banking
BANCO DE FOMENTO ANGOLA
Banco de Fomento Angola (BFA) is an Angolan-law bank and Banco de Fomento Angola principal indicators Amounts expressed in millions of euro resulted from the transformation in July 2002 of the former 2001 2002 ∆%1 Share1 Position Banco BPI' overseas branch. The bank was incorporated with Assets 503.8 557.4 11% 23.9% - an initial capital of USD 30 million, all of which is owned by Loans to Customers (net) 53.9 82.8 54% 19.9% #3 the BPI Group. Customer deposits 353.2 401.8 14% 27.9% #1 Contribution to BPI Group consolidated net profit2 25.9 16.6 (36%) - - Banco de Fomento has been present in Angola since 1993 No. of Employees 228 286 25% - #2 and has been owned by the BPI Group since 1996, year in Branches 16 17 6% - #2 which Banco de Fomento e Exterior was acquired. 1) At the end of October 2002, except for the caption Assets Table 13 whose market share refers to March 2002 2) Contribution of the former Banco BPI's branch until June 2002 and Banco de Fomento Angola since then. At 31 December 2002, the shareholders’ equity invested in BFA totalled EUR 40.7 million, which corresponded to 3.5% The end of the war in Angola and the inherent prospects for of the BPI Group’s shareholders’ equity. the normalisation of civil and economic life in the country, justify the optimistic outlook for the future of banking BFA’s activity is predominantly directed at providing support activity in the next few years. for Angola’s business sector, namely, support for external trade and investment, reorganisation and modernisation The ongoing expansion of Banco Fomento de Angola’s projects. The attraction of resources also plays a very commercial network– a further 13 branches are scheduled important role in the bank’s business. At the end of 2002, to be opened in 2003, 10 of which outside of Luanda – BFA was second-ranked bank with a market share of more coupled with the technical experience accumulated by its than 25%. human resources, place the bank in a favourable position to take advantage of these expectations. BFA’s network – in continuous expansion over the last 10 years – comprised 17 branches at the end of 2002, making it the country’s second largest banking network.
In 2002, BFA registered increases in assets and Customer resources of 11% and 14%, respectively. However, the most pronounced growth was recorded in its loan portfolio (net), in the order of 54%, of which only 1.3% are loans in arrears. This reflects the strict policy which has been followed in the concession of loans.
62 Banco BPI | Annual Report 2002 BANCO DE FOMENTO MOZAMBIQUE
Banco de Fomento Mozambique (BFM) is a local-law Banco de Fomento Mozambique principal indicators Amounts expressed in millions of euro commercial bank, 100%-controlled by the BPI Group since 2001 2002 ∆% Share1 Position1 1996 when Banco de Fomento e Exterior was acquired. Assets 109.7 102.8 (6%) 6.9% #5 Loans to Customers (net) 48.4 42.4 (13%) 9.8% #4 BFM essentially focuses on the corporate and medium-high Customer deposits 85.0 77.1 (9%) 8.4% #5 and high-income individuals’ segments. Contribution to BPI Group consolidated net profit 0.5 2.3 346% - - No. of Employees 113 121 7% - #5
At the end of 2002, BFM’s shareholders’ equity amounted to Branches 5 7 40% - #5 EUR 13.3 million – equivalent to 1.1% of the BPI Group’s 1) Sectorial data referring to December 2002, except for Table 14 Banco Austral, whose figures refer to the end of 2001. shareholders’ equity – occupying 5th position in general terms in the Mozambican banking system. On the operating front, the most noteworthy developments were the intense work aimed at the installation of ATMs and The volume of Customer deposits was EUR 77 million at the POS at the principal focal and retail points in Maputo, and end of 2002, and the loan portfolio (net) EUR 42 million. the participation of BPI Dealer Moçambique – wholly-owned On the same date, BFM had a network comprising BPI Group subsidiary – in the Public Offer for Sale of the 7 branches and a staff complement of 121. company Cervejas de Moçambique and in the subscription of Mozambique State treasury bonds. Banco de Fomento Mozambique’s performance in 2002 was affected by the adverse macroeconomic background. Finally, the prestigious magazine "The Banker" rated Banco Nonetheless, BFM was able to preserve its base of recurring de Fomento Mozambique "Bank of the year" in Mozambique revenues, at the same time as additional income was derived in 2002. from the efforts made to recover loans in arrears. As a result, the contribution to the Group consolidated net profit for the year increased from EUR 0.5 million in 2001 to EUR 2.3 million in 2002.
Projected merger between Banco de Fomento Mozambique and Banco Comercial e de Investimentos
In February 2003, the Chairmen of the Management Boards of The realisation of this merger will give origin to a bank that will the BPI Group and Caixa Geral de Depósitos Group (Portugal’s have a network of 31 branches and a market share of almost largest financial group) presented to the Mozambican 20%, thereby transforming it into the 2nd biggest credit authorities a proposed merger of the activities of Banco de institution within the Mozambican banking system. The merger Fomento Mozambique and Banco Comercial e de Investimentos will benefit from the complementarity that currently exists (BCI), the latter being the 4th largest credit institution presently between the banks’ commercial networks and the positions operating in Mozambique. held in the various market segments.
Report | International Commercial Banking 63 BANC POST
BPI has owned a shareholding of 17% in the Rumanian Banc Post principal indicators1 Amounts expressed in millions of euro commercial bank, Banc Post, S.A. since 1999. The amount 2001 2002 ∆% Share Position of this investment is EUR 17.4 million. Assets 577.7 623.4 8% 4.1% #7 Loans to Customers 152.0 173.3 14% 3.8% #7 Customer deposits 382.7 436.3 14% 4.6% #7 Formerly a public-sector bank, Banc Post became a fully- Contribution to BPI Group 2 -fledged privatised bank in November 2002. Its principal consolidated net profit 3.3 (0.3) (110%) - - shareholders include, besides BPI, Bank Eurobank EFG No. of Employees 3 440 3 451 0.3% - - Branches 126 151 20% 14% #4 Ergasias, one of Greece’s major financial groups. 1) Prepared in accordance with IAS – International Accounting Standards. Table 15 2) Share in net profit corresponding to the BPI Group 17% shareholding.
Banc Post holds a prominent position in the segments comprising small and medium-sized companies and Banc Post’s activity has benefited from Rumania’s economic individuals in the medium-high income bracket. convergence with the European Union, in line with its candidacy for accession. The bank has its own network of 151 branches and a further 748 points of sale within the ambit of the partnership accord with the Rumanian postal services. Banc Post also boasts the largest network of ATMs and POS in Rumania. At the end of 2002, there were more than 1 million of the bank’s credit cards in circulation.
64 Banco BPI | Annual Report 2002 Insurance
In the insurance area BPI has a strategic partnership with Thus, BPI Customers have at their disposal a comprehensive the world wide sector leader – the German group Allianz. array of insurance products ranging from non-life cover – This association has been cemented through BPI’s 35% motor car, household all risks, fire, building works and stake in Allianz Portugal and the distribution agreement installations, public liability and theft, personal accident, under which insurance cover is marketed via the Bank’s sickness, unemployment, hospitalisation and dental commercial network. treatment – to life assurance – death and disability.
Increase in the level of global satisfaction of BPI Customers According to the results of a study covering bancassurance BPI Customer Global Satisfaction Index Customer satisfaction conducted by a renowned multinational market survey company – sigma.dos – the level of global
satisfaction of BPI Customers who had subscribed for 2002 74% insurance cover from Allianz attained a value of 74% in 2002 (69% in 2001). In similar vein, Allianz obtained very 2001 69% encouraging results in the individualised analysis of each one of the attributes considered – «Efficiency in service provided», 66% 68% 70% 72% 74% 76% «Speed in resolution of claims», «Company’s prestige», etc. –
having evolved more favourably than its competition in 7 of the Chart 20 survey’s 8 attributes.
The positive results achieved are reflected in the levels of Commissions Intermediation of insurance activity, revenues and penetration levels registered: in 2002, products M.€ the amount of commissions earned rose by 75% to EUR 12 10.6 million. Life assurance and general insurance 10.6 premiums in 2002 were respectively EUR 24.9 million and EUR 24.0 million. The growth rates for these premiums 9 compare very favourably with the average growth recorded by 6.0 the sector, outstripping this average by 23 p.p. in the life 6 assurance segment and by 29 p.p. in the non-life (general) insurance segment. 3.4 3 2.1 The insurance penetration rate amongst BPI’s individual 1.2 Customer base has also evolved positively, to be situated in 0 98 99 00 01 02 2002 at 22% in the life assurance segment (19% in 2001) Chart 21 and 14% (11% in 2001) in the non-life (general) insurance segment.
Report | Insurance 65 Asset Management
OVERVIEW
The volume of assets managed by BPI remained virtually the instability pervading the equities markets. This situation unchanged in 2002, standing at EUR 7 513 million at 31 led investors to opt for more conservative investments, such December. This trend is indeed particularly positive when as life assurance or money market funds. Products designed one considers that 2002 was characterised by the continuing for the setting up of Retirement / Education Savings Plans adverse climate for asset management activity, notably, as represented, at the end of 2002, 24% of the universe of regards those products which have greater exposure to unit trust (mutual) funds and capitalisation insurance.
Assets under management Amounts expressed in millions of euro 1998 1999 2000 2001 2002 ∆% 01 / 02
Unit trust (mutual) funds 3 752 3 776 3 787 3 748 3 505 (6.5%)
Pension funds 1 672 1 795 1 893 1 984 1 980 (0.2%) Life assurance 956 994 1 046 963 1 170 21.5% Institutions 339 345 338 316 238 (24.7%) Private Banking 1 340 1 417 1 546 1 382 1 264 (8.5%) Assets under management1 7 009 7 249 7 639 7 545 7 513 (0.4%) 1) Corrected for double recording. Table 16
Creation of a risk management area Within the ambit of Asset Management activity, a Risk relative importance of bond funds. Operations in this area Management Area was created in 2002 with the objective of also entailed boosting credit risk control over the bond optimising the use of techniques for adjusting risks to the component of portfolios. One of the methods resorted to was commercial goals of financial products; a new unit that evaluating the bankruptcy probabilities supplied by KMV, one results in an increase in the value of the service provided to of the world’s top specialists in credit risk. Customers and in management capability. This unit, which is Assets under independent from the Portfolio Management Area, reports management Bi.€ directly to Management and has as its mission supporting 8.0 the decision-making process and contributing to a better 7.6 insight into risks and their impact. 7.5 7.5 7.5 7.2 BPI developed specific tools for the analysis, classification 7.0 and quantification of the different risks attaching to the 7.0 portfolios under management, and therefore enabling the portfolio management team, as well as the compliance team, 6.5 to monitor the risks defined.
6.0 The increase in demand for unit trust (mutual) funds with a 98 99 00 01 02 more conservative profile gave origin to an increase in the Chart 22
66 Banco BPI | Annual Report 2002 UNIT TRUST FUNDS
Despite the steep declines posted by the equities markets to EUR 3 505 million at the end of 2002. Taking into (in the great majority of cases in excess of 30%), which had consideration only those funds domiciled in Portugal, BPI a strong impact not only on the capital growth of the assets Fundos presented a market share of 16.9% at the end of under unit trust fund management, but also on investors’ 2002, placing it in fourth position in the ranking of demand for other alternatives for their investments, BPI’s Portuguese fund management companies. portfolio of unit trust (mutual) funds declined only 6.5%
Trend in volume of BPI unit trust funds Amounts expressed in millions of euro 2001 2002200019991998
Bonds and money market 1 158 1 253 1 126 1 487 1 631
Capital growth (equities) 435 504 528 334 192 Tax efficiency (PPR/E and PPA) 971 1 089 1 125 1 163 1 142 Diversification 1 141 893 964 764 541 Total 3 705 3 740 3 743 3 748 3 505 Funds of funds 47 36 43 0 0
Table 17
Of BPI’s total unit trust funds, 13% are placed with the form part of the portfolios of Banco BPI individual Investment Bank’s Private Banking Clients, while 84% Customers.
Distribution of BPI unit trust funds Amounts expressed in millions of euro 2002 %2001%2000%
Banco BPI individual Customers 2 955 78% 2 968 79% 2 955 84% Private Banking 635 17% 580 15% 454 13% Other 197 5% 200 6% 96 3% Total 3 787 100% 3 748 100% 3 505 100%
Table 18
Unit trust funds under Distribution of BPI unit management trust funds At 31 December 2002 Bi.€ 4.0 3.75 3.78 3.79 3.75
3.51 3.5
3.0
2.5
Individuals Banking (84%) Private Banking (13%) Other (3%) 2.0 98 99 00 01 02
Chart 23 Chart 24
Report | Asset management 67 INSTITUTIONAL CLIENTS
The total assets of institutional Clients under management Of the Clients who left, two did so as a result of a change in with discretionary and advisory mandates totalled EUR 238 their ownership structures, with control being taken over by million at the end of 2002, or 24.7% less than at the end of competitor financial institutions. The other Client (a Public 2001. This decrease is due on the one hand to the Administration body) was the object of internal restructuring, behaviour of the stock markets, which was responsible for in terms of which it assumed responsibility for the the decline in asset values and, on the other, to the independent management of these funds. departure of three Clients.
CAPITALISATION LIFE ASSURANCE
Business written by BPI Vida at the close of 2002 was The less appealing behaviour of the stock markets was EUR 211.9 million, which corresponds to growth of 67% beneficial for the selling of guaranteed-capital and profit- relative to 2001. -sharing products (BPI Novo Aforro Familiar).
Capitalisation life assurance business written Amounts expressed in millions of euro 1998 1999 2000 2001 2002
BPI Taxas Garantidas 2.9 73.0 41.4 40.7 34.8 BPI Novo Aforro Familiar 12.1 21.7 8.5 65.3 130.4 Other 41.0 6.7 5.9 20.71 46.6 Total 56.0 101.4 55.8 126.7 211.9
1) Does not include reinvestments in capitalisation insurance (BPI Guaranteed Rate 3 years – Roll-over). Table 19
The increase in new business written by BPI Vida is due to – the sales launch of Renda Garantida, a life assurance the following factors: product which guarantees the payment of periodic instalments of a guaranteed amount and which constitutes – the significant increase in sales (net of redemptions / an extension of BPI Vida’s product range. / withdrawals) of BPI Novo Aforro Familiar when compared Capitalisation life to the same period of 2001 (+100%), thanks to the assurance New business per year continuing commercial drive embarked on in 2001 and M.€ 250 to Customers’ interest in risk-free products at a time of appreciable instability on the stock markets; 211.9 200
– extending the offer of insurance in participating units, with 150 Customers being given the possibility of managing their 126.7
investments in a flexible manner through the selection of 101.4 100 funds with varying risk profiles, managed either by BPI Vida (seven funds) or by the world’s most reputable fund 56.0 55.8 50 management companies, namely, Merrill Lynch, Goldman Sachs, UBS, Schroders and Fidelity, (18 funds); 0 98 99 00 01 02
Chart 25
68 Banco BPI | Annual Report 2002 BPI Vida had in 2002 one of its most profitable years since its formation and continues to develop innovative new products.
BPI Vida Capitalização – Private Banking Renda Garantida Is an insurance product in participating units conceived for As a result of the BPI Group’s vast experience in the Private Banking Clients, which allows the Client by means of a management of guaranteed rate assets, BPI Vida launched single policy to choose his risk profile and to invest in the Renda Garantida (guaranteed income), a life assurance policy different funds – Ultra-Conservative, Conservative, Balanced which guarantees the payment of periodic instalments of a and Aggressive – with an associated dynamic management. guaranteed sum. BPI Vida also offers its corporate Customers a supplementary service with the payment of periodic BPI Vida Unit-Linked instalments, payments to the Social Security scheme and the This insurance product in participating units allows the Client respective withholding of IRS (personal income tax), thereby to link the advantages of life assurance to the possibility of releasing the company from the responsibility to its former opting for diversifying his investments into more than 18 Employees. international funds of the most renowned international investment management companies, namely, Merrill Lynch, Goldman Sachs, UBS, Schroders and Fidelity.
Report | Asset management 69 PENSION FUNDS BPI Pensões managed at 31 December 2002 pension fund Insofar as BPI Pensões’ operations during the year are financial assets amounting to EUR 1 980 million, a figure concerned, the main development was the drive to improve which is practically stationary with that registered at the end of the service offered to Clients, not only in the area of actuarial the preceding year. management, but also in the arena of managing contributions and the processing of pension payments, as well as the Pension funds under Open pension funds under management management upgrading of the company’s site, through which complete and Bi.€ M.€ 2.4 80 clear information is channelled to Clients about respective funds management. 2.0 2.0 66 1.9 63 1.8 1.8 1.7 60 53 53 During the year under review, some 70 company pension funds
44 were the object of actuarial monitoring, pensions were 1.2 40 processed and paid to 14 130 retirees and pensioners (involving an amount of EUR 132 million), and the maintenance assured of 2 300 accounts of defined- 0.6 20 -contribution pension plan participants.
0 0 98 99 00 01 02 98 99 00 01 02 Pension Fund Returns Through the properly structured implementation of Assets under management Assets under management investment policies founded on the permanent control of risk Chart 26 Chart 27 and global asset allocation, it has been possible to enhance the long-term performance of pension funds under BPI At 31 December 2002, BPI Pensões was responsible for the Pensões management. management of 28 pension funds, of which two were open funds representing 3.3% of the total amount of assets under Pension funds long-term return management. The two open funds present different investment strategies and, consequently, financial placements with varying % Long-term return, calculated 10.0 degrees of risk, thereby permitting BPI Pensões Clients to 9.1 on the basis of the median of select those most suited to the own risk profile. the pension funds’ returns, 7.6 7.5 over five, seven and ten years, The open pension funds have presented a highly positive trend compared with the change in in recent years, both in value and in the number of members, the Consumer Price Index 5.0 collective and individuals. At 31 December, these funds 3.7 3.3 boasted net assets of EUR 65.8 million relating to 48 3.2 3.0 Median of BPI pension 2.5 collective (corporate) and 327 individual members. funds return Change in Consumer Price Index 0 Chart 28 98-02 96-02 93-02
70 Banco BPI | Annual Report 2002 The results obtained by BPI’s Asset Management area in a year marked by the stock markets’ poor performance around the globe and against a backdrop of historically very low interest rates, confirms the importance of a proper diversification of investment portfolios and the advantages of a specialised and experienced management.
Fixed-rate funds: the best market yields Banco BPI’s fixed-rate funds, BPI Taxa Fixa PPR/E and BPI Euro Taxa Fixa, posted the best yields amongst the universe of unit trust funds managed by Portuguese companies (8.78% and 7.40% respectively).
In the category of European Union, Swedish and Norwegian equity funds, BPI Europa Valor and BPI Europa Crescimento presented the best and third best returns, -24.39% and -28.29% respectively, which compare with the fall of -30.86% that occurred on the European equities market (MSCI – Morgan Stanley Capital International Europe).
Biggest Poupança Reforma / Educação (Retirement / Education Savings Fund) At the end of 2002, BPI Reforma PPR/E was the largest investment fund in the category of retirement / education savings plans, with a volume of managed assets of EUR 616 million.
BPI Liquidez: one of the unit trust funds market’s biggest increases The demand for low risk investments led to an increase of EUR 278 million in BPI Liquidez (up 37.1% relative to the 2001 portfolio), one of the biggest volume increases recorded by unit trust funds in the national market.
Life assurance doubles in 2002 In the area of capitalisation life assurance, the portfolio of products offering guaranteed capital and profit sharing doubled in size, with the universe of portfolios managed by BPI Vida expanded by EUR 207 million.
BPI novo aforro familiar (new family savings): 4.06% in 2002 The capitalisation life assurance Novo Aforro Familiar achieved net subscriptions of EUR 120 million, and generated earnings which yielded its participants a return of 4.06%, net of commissions.
Report | Asset management 71 Investment Banking
CORPORATE FINANCE
2002 witnessed a slowdown in economic activity, a real BPI’s permanent attention paid to satisfying Customers’ decline in investment and deterioration in the level of requirements and the quality of the solutions proposed – economic agents’ confidence. In tandem with the negative reflected in the growing loyalty of a diversified group of behaviour of the stock markets, these factors were Clients – and in spite of the forementioned overriding factors responsible for the retraction in the demand for Corporate and the keenly competitive environment, permitted the Bank Finance services, as regards both the advisory component to provide, amongst others, the following services in 2002. and the organisation of market operations.
Mergers, acquisitions, restructurings and consultancy Portucel: advising on the reorganisation of the pulp and paper Cofina: advising on the valuation of the company’s assets in sector. the media and Internet and giving support in the acquisition of TvGuia. Portucel Group: advising on the analysis of investment decisions and on the preparation of a forestry development Soares da Costa: advising on the restructuring of the plan. company’s organisation.
Unicer: advising on the restructuring of Unicer Águas and on Auto Sueco: advising on the valuation of the company’s the analysis of investment decisions. business segments and providing consultancy services in the restructuring process. Partex Oil and Gas (Holdings) Corporation: advising on the valuation of their oil & gas assets. Metro do Porto: advising on the launching of public tenders for the construction and operation of the second phase of the Vodafone Telecel: advising on the structuring of a joint venture surface metro system for the Oporto metropolitan area. with Optimus for the towering activity, and in the process of the consolidation of Portugal’s mobile telecommunications ANA – Aeroportos de Portugal: advising on the preparation of a sector. feasibility study for the investment project at the Francisco Sá Carneiro airport, and in the mobilisation of funds from the Sonae.Com: organisation, mounting and placing of the capital European Investment Bank. increase and the listing of the new shares. ANAM – Aeroportos e Navegação Aérea da Madeira: advising Vizzavi Portugal: advising on sale of the virtual internet service on the financing of Madeira’s airport provider business. TAP – Air Portugal: support given in the process involving the Edinfor: advising on the company’s organisational restructuring. reprivatisation of the company’s capital. ACE: advising on the analysis of investment decisions. Ricon: advising in the restructuring of the company’s organisation.
72 Banco BPI | Annual Report 2002 EQUITIES
As was the case in 2001 and 2000, the negative It is now possible to trade approximately 1,000 financial background registered in the equities market in 2002 – instruments on the domestic and international markets via the PSI-20 index retreated 26% in this period, while the BPI Online, BPI’s online stockbroking service. BPI started to Euronext Lisbon’s cash market suffered a year-on-year drop offer real-time share dealing on international stock markets of 29% in trading volume – was mirrored in the BPI’s in 2002. In January 2003, this service covered 580 equities business. The PSI-20 has posted an accumulated international stocks forming part of the Ibex Geral, CAC 40, decline of 53% since December 1999. AEX25, MIB30, DAX, OMX (Sweden), BEL20, SMI (Switzerland), DJIA, Nasdaq-100 and FTSE indices. Primary equities market The primary market was virtually inactive in the period. The Research only operations recorded were a few capital increases Research coverage at the end of 2002 embraced 31 reserved for shareholders (one of which involved BPI itself), Portuguese companies (99.9% of the PSI-20’s capitalisation Sonae.com’s capital increase reserved for shareholders and together with 11 small caps) and 45 Spanish companies institutional investors lead managed by BPI, and an offer of (92% of the Ibex’s capitalisation together with 17 small securities mandatorily convertible into shares. Another caps).The principal additions to the list of companies operation effected was the placing of convertible bonds for covered since January 2002 were TPI, Enagás, Aldeasa, Brisa. Cepsa and Dragados. Already in January 2003, the following companies began to be covered: Acerinox in Spain and Secondary equities market Novabase in Portugal. The merger by incorporation of BPI Dealer into BPI took place in 2002. BPI generated commissions of EUR 3.7 Trading million on the secondary market (a negative year-on-year Despite the cash market’s negative behaviour, trading activity variation of 25%). Around 92% of this amount refers to the (including arbitrage) made a positive contribution of EUR broking of equities transactions and reflects the increased 1.7 million to 2002 results, reversing the situation in 2001. weight of commissions earned from equity dealing on foreign stock exchanges. The market share brokered by BPI Dealer On the futures market, and in terms of activity on behalf of in the period on Euronext Lisbon was 6.1% in the equities Customers and dealing for own account, BPI increased segment, or virtually unchanged from the 6.2% recorded in market share relative to 2001 in PSI-20 index futures (18% 2001. of market share and second position in the ranking) and in equity futures (60% of market share and undisputed first During this period, BPI continued to organise road shows for place in the ranking). BPI was also a dominant leader Portuguese and Spanish companies, namely, for Portugal amongst domestic operators in the trading of index futures Telecom, Telecel, Mota-Engil, Gamesa, Banco Popular, and options on the MEFF (Spanish Derivatives Exchange). Logista, Ebro Puleva, NH Hoteles and Bankinter.
Report | Investment banking 73 PRIVATE BANKING
BPI’s Private Banking’s service concentrated in 2002 on The total volume of managed assets and loans advanced by broadening the product range and adapting it to the scenario of BPI Private Banking at 31 December 2002 amounted to EUR steep falls in the capital markets and the succession of 1 650 million, which represents a decrease of 6% when downward revisions to the growth projections for the world’s compared with the preceding year. Of this figure, EUR 1 264 leading economies. This concern – to protect and achieve million refers to assets under discretionary management or capital growth from a medium and long-term perspective for effective advisory mandates (down 9%), EUR 316 million was Clients’ assets – is evidenced by the adoption of an investment associated with stable investments under custody and EUR and advisory policy that favoured the selection of more stable 70 million represented loans advanced to Clients. income-earning assets as opposed to exposure to higher-risk assets.
Principal Private Banking indicators Amounts expressed in millions of euro 1998 1999 2000 2001 2002
Assets under management 1 340 1 413 1 546 1 382 1 264 Discretionary management 655 729 697 518 511 Advisory services 685 684 849 864 753 Stable investments under custody 338 452 334 373 316 Loans advanced – 58 82 71 70
Table 20 BPI (Suisse), S.A. In July 2002, the physical presence of BPI Private Banking’s This new structure – manned by a team of highly qualified service extended abroad with the creation of BPI (Suisse), and experienced professionals – has as its mission offering S.A. – a Swiss-law wealth-management company geared to Clients, in addition to traditional banking services, a serving individual high net-worth Clients. personalised service in investment-decision making.
Investment centres Within the ambit of BPI’s multi-channel distribution strategy, a new network was created in 2002 – Investment Centres – to cater for individual Clients with assets worth more than EUR 100 thousand.
74 Banco BPI | Annual Report 2002 Private Equity
At the end of 2002, the BPI Group’s Private Equity area figure. There was an increase in the relative importance of managed a group of assets which totalled some EUR 115 expansion projects at the expense of proposed start-ups. million (at balance sheet values). In view of prevailing market conditions, there was of course In the wake of the BPI Group’s restructuring, December saw greater selectivity in the approval and realisation of new the merger by incorporation of one of the area’s vehicles – investments. BPI Ventures, SGPS, S.A. – into the present Banco BPI, S.A., in terms of which the latter has assumed by virtue of Accordingly, a mere EUR 2 million was invested during the merger the entire universe of the incorporated company’s 2002, essentially directed at the reinforcement of existing legal relationships, both asset and liability-related. The investments. Private Equity area will continue, however, to manage the Group’s Private Equity investments through Inter-Risco. Notwithstanding the scarcity of disinvestment opportunities as a result of the subdued activity in merger and acquisition Another noteworthy event was the constitution at the end of deals, as well as the adverse behaviour of the stock markets, 2002 of the Fundo Caravela –a venture capital fund disposals amounting to EUR 10 million were effected (at promoted by the BPI Group –, whose management will be balance sheet values). These related essentially to certain entrusted to Inter-Risco. This Fund has an initial capital holdings in small caps and minor investments not allocation of EUR 20 million, to be increased to EUR 50 conforming with the area’s present investment policy. Six million in the future. Amongst the Fundo Caravela’s array of shareholdings were sold off completely. investors is the EIF – European Investment Fund. This was the first operation of its kind realised by the EIF in Portugal. Market It should be pointed out that the EIF is today an important Available indicators relating to Private Equity activity in catalyst and key institutional investor in the sphere of Portugal for the first half of 2002 point to growth in European venture capital, participating in some 185 venture investment vis-à-vis 2001, contrary to the trend noted at capital funds in the European Union with a global European level. It is important to bear in mind, however, that investment volume of EUR 2.5 billion. the comparative analysis could be distorted by the fact that a substantial part of the investment made refers to equity 2002 was marked by a pronounced containment of loans (shareholdings with pre-established repurchase prices) investment as a result of the steep downturn in general and not pure equity (pure venture capital operations). It is economic activity, with special incidence on Private Equity possible, however, that in the overall analysis for 2002, the activity, as evidenced by data characterising venture capital sector recorded in general terms a stabilisation in pure activity in Portugal and the European Union. equity investments, with these relating primarily to ongoing investments or to the reinforcement of existing Nevertheless, more than 80 projects were received and shareholdings. analysed during 2002 by BPI’s Private Equity area, representing investment intentions in the order of EUR 180 million – corresponding to around 2/3 of the previous year’s
Report | Private Equity 75 At the end of the year, new legislation was published which Investments sets out the legal framework for venture capital activity in The current investment portfolio presents a healthy balance Portugal – that could prove to be extremely beneficial for the as regards the various appraisal components: sector, sector –, in conjunction with numerous specific support geographical area and nature of investment. programmes promoted by national authorities.
Investment strategy Portfolio of Private Equity Investment strategy continued to favour projects led by investments by sector of activity At 31 December 2002 professional management teams possessing a strategic Final consumer (34%) business vision, with high growth potential, and equipped Other manufacturers (19%) with adequate management information systems. The same Conglomerates (12%) Retailing (11%) strategy will be follow within the ambit of the Fundo IT products and services (11%) Financial services (7%) Caravela’s management. Other sectors (6%)
Chart 29
Principal Private Equity holdings Company % held Activity Barbosa & Almeida 14.5% Manufacture and sale of glass containers. Vista Alegre Atlantis1 19.27% Manufacture and sale of table and decorative ware (in porcelain, glazed earthenware, crystal and glass). Cofina 8.71% Media, ceramics and glass, cellulose. Ibersol2 12.98% Fast food outlets (Pizza Hut, Goody’s, KFC, O’Kilo, Pasta Café, Frangão,…). Ensitel 10.78% Retailer of telecommunications equipment. ParaRede 3.85% Information technology services and products. Arco Bodegas Unidas3 2.14% Production and commercialisation of wines from the Rioja region. Fernando & Irmãos (Aveleda) 19.9% Wine production and sales. Ricon 17.02% Manufacture and specialist retailer of menswear (Gant and Decenio shops). Altitude Software 9.66% Manufacture and sale of software for contact centres. Caravela Gest 20.0% Food retailer (Häagen Dazs). Tecmic 24.45% Microelectronics. ChipIdea 4.76% Provision of services to the semiconductor / chip design industry. Multitema 30.23% Printing and production of multimedia content. WhatEverNet 13.0% Resale of Sun MicroSystems products and provider of services in Java, Internet and systems integration. TVTEL 25.0% Cable television. Brasopi 15.03% Specialised menswear retailer (Boxer Shorts by Throttleman shops). Caderno Verde 23.86% Publishing group in the area of entrepreneurial capacity and the environment. Teleman 48.89% Provision of services to companies by recourse to teleworking.
1) Corresponds to the direct shareholding of Banco BPI (12.28%), of Inter Risco (5.11%), which is 83.64% owned by BPI Group and to the direct shareholding Table 21 of Fundo FRIE (1.89%), of which Inter Risco is entrusted for its management and it is not reflected in the BPI Group investment portfolio. 2) Corresponds to the direct shareholding of Banco BPI (6.33%) and the indirect shareholding (6.65%) owned through IES. 3) Corresponds to the direct shareholding of Inter Risco.
76 Banco BPI | Annual Report 2002 Financial review
CONSOLIDATED RESULTS
Overview BPI’s consolidated net profit in 2002 was EUR 140.1 Administrative overheads, depreciation and amortisation million, an improvement of 5.1% on 2001. Net profit from decreased by EUR 14.3 million (-2.8%), reflecting the domestic activity grew by 18% and excluding the execution of the strategic programme aimed at cost contribution from insurance activity increased by 22%. reduction and greater efficiency. Personnel costs declined Earnings per share were situated at 19.2 euro cents 0.9%, outside supplies and services fell 6.1% and (19.6 cents in 2001). depreciation and amortisation decreased by 3.2%. Accordingly, the efficiency ratio1 continued to show an The growth in consolidated net profit reflects the 9.9% improvement, falling from 68.3% in 2001 to 67.1% in increase in the contribution from domestic Commercial 2002. Banking activity, which totalled EUR 126.3 million. The contribution from international Commercial Banking At the close of 2002, the ratio of loans in arrears for more operations declined by 38% to EUR 18.5 million. The than 90 days was situated at 1.3% (0.9% in 2001), while Investment Banking, Private Equity and other investments the respective provisioning cover stood at 153%. areas were influenced by the negative behaviour of the capital markets. At 31 December 2002, the ratio of own funds requirements, calculated in accordance with the Bank of Portugal’s rules, The loan portfolio expanded 7.2%, a figure which reflects a was 10.2% and 7.3% for Tier I (ratios of 11.4% and Tier I different approach in the segments where BPI operates: the of 7.4%, according to the BIS international requirements). priority given to mortgage finance continued, while credit selectivity, in particular in the large corporates segment, Net profit M.€ increased. Consequently, mortgage loans grew by 25.6%, 160 152.4 whereas the large companies’ loan portfolio declined 10.7%. 137.0 140.1 133.3 For their part, deposits posted a rise of 6.4%. 124.8 120
Operating income from domestic Commercial Banking rose by 2.7% to EUR 653.0 million. The decrease in operating 80 income from banking generated by International Commercial Banking operations and by the Private Equity and Other 40 Investments area was responsible for consolidated operating income from banking falling by 3.8% to EUR 751.0 million. 0 98 99 00 01 02
Chart 30
1) Relationship between administrative overheads plus depreciation, and operating income from banking, excluding profits from financial operations.
Report | Financial review 77 Consolidated income statement Amounts expressed in millions of euro 2001 2002 ∆%
Net interest income (narrow meaning) 479.7 477.2 (0.5%) Income from securities (variable yield) 15.9 10.4 (34.7%) Net interest income 495.6 487.6 (1.6%) Commissions and other similar income (net) 225.3 229.2 1.7% Recovery of loans in arrears written-off 18.9 14.7 (22.2%) Profits from financial operations (net) 40.6 19.5 (51.9%) Operating income from banking 780.3 751.0 (3.8%) Personnel costs 288.3 285.7 (0.9%) Other administrative overheads 165.0 155.0 (6.1%)
Depreciation and amortisation 51.8 50.2 (3.2%) Administrative overheads and depreciation 505.1 490.8 (2.8%) Net operating income before provisions 275.2 260.2 (5.5%) Provisions (net) 84.5 68.1 (19.4%) Net operating income 190.6 192.1 0.7% Net extraordinary items 5.0 (5.3) (205.7%) Profit before taxation 195.7 186.7 (4.6%) Corporate income tax 59.6 44.7 (25.0%) Profit after taxation 136.0 142.0 4.4% Equity-accounted results of subsidiaries 14.5 7.9 (45.6%) Minority shareholders’ share of profit 17.3 9.8 (43.2%) Net profit 133.3 140.1 5.1% After-tax cash flow 269.6 258.4 (4.2%)
Table 22
78 Banco BPI | Annual Report 2002 Results by business areas Domestic Commercial Banking activity posted a growth in which reflects the negative effect of the currency revaluation net profit of 9.9% in 2002 to EUR 126.3 million which, in of the aforementioned equity participations. turn, can be attributed to the higher operating income banking and the reduction in costs. These two factors Investment Banking contributed EUR 2.9 million to the compensated for the higher level of provisioning when Group’s net profit, whilst Private Equity and other compared to the preceding year. investments made a negative contribution of EUR 7.7 million (EUR -13.9 million in 2001). The contribution from international Commercial Banking operations to consolidated net profit fell by 38% in 2002
For purposes of segmental analysis, four business areas have Banking activity abroad was EUR 71.4 million, that is,
been defined: domestic Commercial Banking, international 6.1% of the Group’s shareholders’ equity.
Commercial Banking, Investment Banking and Private Equity
and other Investments. Domestic Commercial Banking Contributions by business area to 2002 net profit M.€ business corresponds to banking activity carried out with 160 2.9 -7.7 18.5 140.1 companies and individuals in Portugal and includes the 126.3 provision of banking services to non residents, namely to 120
emigrant communities and the Madrid branch. International 80 Commercial Banking activity refers principally to business
operations conducted by Banco de Fomento Angola and by 40 Banco de Fomento Mozambique, including also the
incorporation of results corresponding to the 17% 0 Domestic International Investment Private Equity Consolidated shareholding in Romania’s Banc Post. At 31 December 2002, Commercial Commercial Banking and other net profit Banking Banking investments the book value of shareholders’ equity employed in Commercial Chart 31
Report | Financial review 79 Profitability by business areas
In 2002, the average return on the Group’s shareholders’ In order to determine profitability, the shareholders’ equity equity (ROE) was 13.5%. The ROE from Domestic allocated to each business is adjusted. Taking into account Commercial Banking was situated at 13.7%, while this adjustment, almost all of the Group’s capital is allocated Investment Banking recorded a ROE of 33.4% by virtue to domestic Commercial Banking (93.1% of average capital of its relatively minor capital consumption. in 2002). 1.0% of the Group’s average capital was allocated in 2002 to international Commercial Banking; 2.3% to Investment Banking, and 3.6% of capital to the Private Equity and other investments area.
ROE by business areas Amounts expressed in millions of euro Domestic International Investment Private Equity and BPI Group Commercial Banking Commercial Banking Banking other investments (consolidated) 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002
Capital allocated (adjusted) 831.4 965.7 7.6 10.1 24.4 24.3 41.3 37.5 904.7 1 037.6 Net profit 115.0 126.3 29.7 18.5 2.4 2.9 (13.9) (7.7) 133.3 140.1 Adjustment to profit due to capital reallocation 8.5 5.6 (2.6) (1.8) 7.0 5.2 (12.9) (9.1) - - Net profit (adjusted) 123.5 132.0 27.1 16.7 9.5 8.1 (26.8) (16.8) 133.3 140.1 ROE 14.9% 13.7% 354.4% 165.3% 38.8% 33.4% neg. neg. 14.7% 13.5%
Note: For the purpose of computing the return on shareholders’ equity (ROE) by business area, the Group’s companies are divided into four areas: Table 23 domestic Commercial Banking, international Commercial Banking, Investment Banking, Private Equity and Other Investments. The companies’ contributions to consolidated net profit, shareholders’ equity and weighted assets are, based on this classification, apportioned to each one of the above areas. 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. 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.
80 Banco BPI | Annual Report 2002 Net interest income
Narrow net interest income (excludes dividends) generated Loans to Customers Net interest income Year-end balance by domestic activity grew by 2.7%, or EUR 11.6 million. € € However, the decreases in net interest income from Bi. M. 20 600 international operations (by EUR 14.1 million) and in 495.6 dividends received (by EUR 5.5 million) were responsible for 16.4 487.6 15.3 442.8 consolidated net interest income decreasing by 1.6% in 15 450 13.3 relation to 2001 (absolute decline of EUR 8.0 million). 338.1 341.1
10 9.4 300 Net interest income Amounts expressed in millions of euro 7.5 20022001 ∆%
Net interest income (narrow meaning) 5 150 Domestic activity 427.5 439.1 2.7% International activity 52.1 38.1 (27.0%) Narrow net interest income (consolidated) 479.7 477.2 (0.5%) 0 0 98 99 00 01 02 98 99 00 01 02 Income from securities 1 (variable yield) 15.9 10.4 (34.7%) Chart 32 Chart 33 Net interest income (consolidated) 495.6 487.6 (1.6%)
1) In 2001, included dividends received of EUR 5.5 million from IMC. Table 24 This investment was sold at the end of 2001. Net interest income generation 2002 Net interest income benefited from the expansion in business volume, as evidenced by the growth of 6.9% and 6.0% in average remunerated assets and liabilities, which generated a positive impact on narrow net interest income (consolidated) of EUR 41.8 million. The rise of 10% in the average balance on the loan portfolio was the factor behind Credit intermediation (82%) the expansion in interest-earning assets. Bond portfolio (12.1%) Hedging, treasury management, trading and other (5.8%)
Chart 34
Report | Financial review 81 The decrease of 0.29 percentage points in the average in mind that a part of resources, namely, sight deposits, earn spread between remunerated assets and liabilities had, on no or close to zero interest. the other hand, a negative impact of EUR 42.7 million (taking into consideration the increase of EUR 17.2 million About 31% of the increase in the average portfolio was in gains from hedging operations using swaps). financed by resources taken from Customers – deposits and structured products – and 45% through issues of medium The narrowing of the spread between interest-earning assets and long-term debt. and interest-bearing liabilities resulted from the decrease of Interest rates for loans and resources 0.25 percentage points in the average spread on resources1, Quarterly average interest rates % whereas the interest-earning assets evidenced only a minor 10
1 contraction of 0.04 percentage points . 8.15 8 6.61 6.49 5.80 The diminution in spreads on the resources side was 6 5.28 5.32 5.22 5.03 essentially associated with the reinforcement of the medium 3.73 4 3.43 3.45 3.12 and long-term funding component (which was reflected in 3.65 2.93 2 2.77 2.46 2.14 the maintenance of the average costs of debt securities) and 1.85 with the background of falling interest rates, particularly 0 98 99 0001 02 intense in 2001 (the average Euribor three-month interest Chart 35 rate declined from 4.3% in 2001 to 3.3% in 2002), bearing Loans to Customers Euribor 3 months Deposits and other remunerated amounts owed to Customers
Average interest rates on remunerated assets and liabilities Amounts expressed in millions of euro 2001 2002 Change in average 1 1 Average balance Average rate Average spread Average balance Average rate Average spread spread Placements with credit institutions 3 401.2 4.6% 0.3% 3 491.8 3.1% (0.2%) -0.54 p.p. Loans to Customers 14 524.9 6.3% 2.0% 15 984.5 5.3% 2.0% -0.03 p.p. Bonds and other fixed-income securities 2 514.8 6.7% 2.4% 2 383.7 6.3% 3.0% + 0.52 p.p. Interest-earning assets 20 441.0 6.0% 1.8% 21 860.0 5.1% 1.7% -0.04 p.p. Amounts owed to credit institutions 6 251.7 4.7% (0.4%) 6 388.5 3.6% (0.3%) + 0.11 p.p. Amounts owed to Customers 11 388.0 2.9% 1.4% 11 892.2 2.2% 1.1% -0.27 p.p. Debt securities 2 772.0 3.1% 1.1% 3 446.9 3.1% 0.2% -0.91 p.p. Subordinated debt 688.4 5.0% (0.8%) 629.6 4.6% (1.3%) -0.47 p.p. Interest-bearing liabilities 21 100.1 3.5% 0.8% 22 357.2 2.8% 0.5% -0.25 p.p. Average spread between remunerated assets and liabilities 2.5% 2.3% -0.29 p.p. Note: Euribor 3M 4.3% 3.3% Average total assets 23 462.4 24 996.6
1) In relation to the annual average of the 3-month Euribor: interest-earning assets = average rate - Euribor 3M Table 25 interest-bearing liabilities = Euribor 3M - average rate
1) Average spread in relation to the annual average of the 3-month Euribor.
82 Banco BPI | Annual Report 2002 The following table presents the trends 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 2001 Balance effect Rate effect Residual effect Total change 2002
Interest-earning assets Placements with credit institutions 155.5 4.1 (50.4) (1.3) (47.6) 107.8 Loans to Customers 910.5 91.5 (141.2) (14.2) (63.9) 846.6 Bonds and other fixed-income securities 168.6 (8.8) (10.8) 0.6 (19.0) 149.6 Correction by the structure effect1 - (1.1) 0.2 0.9 - - Income from interest-earning assets 1 234.6 85.7 (202.3) (14.0) (130.6) 1 104.0 Interest-bearing liabilities
Amounts owed to credit institutions 291.0 6.4 (65.9) (1.4) (61.0) 230.0 Amounts owed to Customers 324.8 14.4 (76.5) (3.4) (65.5) 259.3 Debt securities 86.6 21.1 (1.0) (0.2) 19.9 106.5 Subordinated debt 34.8 (3.0) (3.3) 0.3 (5.9) 28.8 Correction by the structure effect1 - 5.1 (1.0) (4.0) - - Cost of interest-bearing liabilities 737.1 43.9 (147.7) (8.8) (112.5) 624.5 Subtotal 497.5 41.8 (54.6) (5.2) (18.1) 479.4 Other income and costs2 (26.3) (1.6) (27.9) Net income from swaps and other off-balance sheet operations 8.5 17.2 25.7 Net interest income (narrow meaning) 479.7 (2.5) 477.2 Income from securities (variable yield) 15.9 (5.5) 10.4 Net interest income 495.6 (8.0) 487.6 1) Reconciliation line for the sum of the volume, price and residual effects of the components of remunerated assets and liabilities relative to the Table 26 value of these effects 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.
Report | Financial review 83 Commissions
Commissions and other similar income from Commercial Commissions and other Banking posted overall growth of 7.2%, the main highlight similar income (net) being the higher commission revenues from loans and M.€ 250 guarantees (+9.0%), cards (+7.5%) and insurance broking 229.2 219.9 225.3 (+81%). 202.2 200 190.7
The overall trend in commissions and other similar income 150 (+1.7%) was, however, adversely affected by the decrease in commissions more directly associated with the equities 100 markets. Commissions earned from asset management business fell by 4.1% (EUR -1.1 million) relative to 2001, 50 Commercial Banking but the steepest decline was recorded by commissions from Asset Management Investment Banking Investment Banking (-26.7%, or EUR 7.3 million), an area 0 98 99 00 01 02 Chart 36 deeply affected by the slump in commissions earned from stockbroking and capital market operations, which declined EUR 3.6 million.
Commissions and other income (net) Amounts expressed in millions of euro 2001 % 2002 % ∆%
Commercial Banking commissions Commissions associated with loans and guarantees 50.4 22% 55.0 24% 9.0% Income from cards 38.7 17% 41.6 18% 7.5% Cheques, transfers and payment orders 16.9 8% 17.1 7% 0.8% Placement of unit trust funds and depositary services 16.7 7% 14.1 6% (16.0%) Intermediation of insurance products 5.5 2% 9.9 4% 81.0% Other Commercial Banking commissions 42.3 19% 45.3 20% 7.2% Commercial Banking commissions and other income 170.5 76% 182.9 80% 7.2% Asset Management commissions 27.5 12% 26.3 11% (4.1%) Investment Banking commissions Consultancy and valuations 10.5 5% 8.8 4% (15.8%) Placement of unit trust funds and depositary services 6.0 3% 4.7 2% (21.1%) Brokerage 5.2 2% 3.9 2% (26.4%) Portfolio management and advisory mandates 2.6 1% 2.8 1% 8.8% Primary equities market operations 2.2 1% 0.0 0% (99.7%) Other Investment Banking commissions 0.8 0% (0.2) 0% (131.5%) Investment Banking commissions and other income 27.3 12% 20.0 9% (26.7%) Total 225.3 100% 229.2 100% 1.7%
Table 27
84 Banco BPI | Annual Report 2002 Profits from financial operations
Profits from financial operations amounted to EUR 19.5 Profits from financial operations M.€ % million, down 52% (EUR -21.1 million) on 2001. It should 40 24 be noted, however, that trading profits in 2001 included the 30 18 capital gain of EUR 31.2 million realised on the sale of a participating interest. 20 12
10 6 In 2002, the most significant contributions emanated from gains on fixed-rate instruments (EUR 22.3 million), and 0 0 gains from trading in equities and futures (EUR 1.5 million) -10 -6 1998 1999 2000 2001 2002 and from structured products (EUR 3.1 million). Profits from financial operations1 (left-hand scale) Chart 37 Profits from financial operations as % of operating income from banking (right-hand scale)
1) Quarterly figures.
Profits from financial operations Amounts expressed in millions of euro 2001 % 2002 % ∆ M.€
Interest rate instruments 9.7 24% 22.3 114% 12.7 Equities and equity futures (4.4) (11%) 1.5 8% 5.9 Structured products 1.0 2% 3.1 16% 2.1 Private Equity1 33.5 82% (4.7) (24%) (38.1) Currency gains 0.3 1% (0.7) (4%) (1.1) Other 0.7 2% (1.9) (10%) (2.6) Total 40.6 100% 19.5 100% (21.1)
1) In 2001, includes a capital gain of EUR 31.2 million realised on the sale of a participating interest in IMC – Investimentos, Media e Comunicação. Table 28
The gains from equities and equity futures were primarily on market operations in the euro zone, USA, United derived from domestic trading operations. On the other hand, Kingdom, converging European markets. trading activity involving interest-rate instruments is centred
Report | Financial review 85 Administrative overheads, depreciation and amortisation
The 2.8% decrease in administrative overheads, depreciation Efficiency ratio and and amortisation when compared with 2001 reflects the cost-to-income % impact of the rigorous execution of the operational 90 rationalisation programme in progress in the period 2002-2004. This involves the reduction in the number of 80 79.6 staff, the proactive management of the branch network, the Efficiency ratio1 2 71.9 Cost-to-income simplification and automation of operating processes, and 74.5 68.3 1) Administrative overheads the intensified use of virtual channels. 70 67.1 depreciation and amortisation 65.0 as % of operating income from 61.7 60.7 banking, excluding profits from The indicator "administrative overheads, depreciation and 60 58.1 58.7 financial operations. 2) Administrative overheads as amortisation as a percentage of recurring income" (operating % of operating income from banking. income from banking excluding profits from financial 50 operations) improved from 68.3% in 2001 to 67.1% in 98 99 00 01 02 Chart 38 2002, in other words, it fell by 1.2 percentage points.
Administrative overheads, depreciation and amortisation Amounts expressed in millions of euro 20022001 ∆%
Personnel costs 288.3 285.7 (0.9%) Outside supplies and services 165.0 155.0 (6.1%) Administrative overheads 453.3 440.7 (2.8%) Depreciation and amortisation 51.8 50.2 (3.2%) Administrative overheads, depreciation and amortisation 505.1 490.8 (2.8%) Administrative overheads as % of operating income from banking 58.1% 58.7% Administrative overheads, depreciation and amortisation as % of operating income from banking, excluding from financial operations 68.3% 67.1% Table 29
Personnel costs Personnel costs decreased by 0.9% when compared to Personnel costs 2002 2001. This trend reflects the ongoing implementation of the rejuvenation and rationalisation programme directed at
Employees deployed in domestic activity and which resulted Fixed costs (60.1%) in a reduction of 5.3% in the average number of staff. As a Variable costs (13.3%) Social charges (21.9%) consequence, the costs of domestic activity fell by 1.4%, Other (4.6%) despite the 2002 salary scale update and the revision of the Chart 39 regime governing the granting of long-service bonuses, both stemming from the ACTV (Collective Employment Agreement for the Banking Sector), the actual impact of which on personnel costs was in the order of 4%.
86 Banco BPI | Annual Report 2002 For its part, international activity entailed an increase in of whom by reason of early retirements (in 2001, 315 early costs of EUR 1.4 million (+19.4%) as a result of the retirement agreements were concluded). Angolan operation’s reinforced structure. The impact of early retirements realised in 2002 on the
Personnel costs Amounts expressed in millions of euro decrease in personnel costs is still not fully reflected in the 2001 2002 ∆% income statement given that staff departures occurred in Domestic activity 281.3 277.3 (1.4%) average terms in August 2002, with the result that these International activity1 7.0 8.3 19.4% Employees ceased to contribute to personnel costs during Total 288.3 285.7 (0.9%) just 1/3 of the year. 1) Banco de Fomento Angola and Banco de Fomento Mozambique Table 30 personnel costs.
In 2002, the staff complement employed in domestic activity was reduced by 519 Employees (-6.9%), 440
Employees of fully-consolidated Group companies Average no. of Employees No. of Employees at end of the year 2001 2002 ∆% 2001 2002 ∆%
Banco BPI in Portugal 6 844 6 429 (6.1%) 6 607 6 5401 (1.0%) Investment bank 441 437 (1.0%) 452 2001 (55.8%) Other subsidiaries in Portugal 256 252 (1.6%) 270 711 (73.7%) Activity in Portugal 7 541 7 117 (5.6%) 7 329 6 811 (7.1%) Overseas branches and representative offices 150 164 9.6% 163 162 (0.6%) Domestic activity 7 691 7 282 (5.3%) 7 492 6 973 (6.9%) International activity2 314 370 17.8% 341 407 19.4% Employees of fully-consolidated companies 8 005 7 652 (4.4%) 7 833 7 380 (5.8%) Note: Does not include temporary workers. Those costs are recorded in the item outside supplies and services. Table 31 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 of certain subsidiaries with Banco BPI and the transfer of Employees from the investment bank. 2) Staff complement of Banco de Fomento Angola and Banco de Fomento Mozambique.
Report | Financial review 87 Outside supplies and services
The costs of outside supplies and services were 6.1% lower dispatching expenses (-22.3%), advertising and publishing than in 2001, with the main contributions coming from costs (-5.8%). third-party supplies (-31.2%), communication and
Outside supplies and services Amounts expressed in millions of euro 2001 % 2002 % ∆%
Outside supplies Water, power and fuel 5.9 4% 6.1 4% 2.8% Forms and materials consumed 5.9 4% 2.1 1% (63.8%) Other third party supplies 2.2 1% 1.4 1% (35.8%) Subtotal 14.1 9% 9.7 6% (31.2%)
Outside services Letting and rentals 25.8 16% 25.2 16% (2.3%) Of which, rentals 19.2 12% 20.1 13% 4.8% Communication and dispatch costs 25.9 16% 20.1 13% (22.3%) Advertising and publishing 23.5 14% 22.1 14% (5.8%) Of which, cost relating to the deferral of advertising campaign costs 13.0 8% 12.9 8% (1.2%) Professional retainers and fees 5.1 3% 6.0 4% 18.3% Conservation and repairs 11.7 7% 11.6 8% (0.4%) Specialised services1 38.2 23% 40.2 26% 5.4% Other third party services 20.9 13% 20.0 13% (4.2%) Subtotal 151.0 91% 145.3 94% (3.7%) Total 165.0 100% 155.0 100% (6.1%) 1) The increase is mainly explained by the execution of the outsourcing programme for certain activities. Table 32
It is Important to mention that the trend in advertising costs despite the investment in campaigns having decreased to recognised in the income statement was negatively EUR 4.0 million (EUR 9.8 million in 2001), the cost influenced in 2002 by the deferral of the expenditure on recognised in the income statement for the year fell by a institutional advertising campaigns1, bearing in mind that, mere 1.2%, totalling EUR 12.9 million in 2002.
1) The costs of institutional and product advertising campaigns are deferred and written off over 3 years on the grounds that the benefits flowing therefrom extend over a number of financial years (and not only in the year in which they are incurred), with the result that the charge of EUR 12.9 million recognised in the 2002 income statement includes EUR 11.7 million corresponding to the deferral of previous years’ costs.
88 Banco BPI | Annual Report 2002 Also worthy of mention was the extension of the outsourcing The following table presents the expenditure on institutional programme embarked on in 2002, and which was practically and product advertising campaigns, as well as the impact of concluded at the close of the year. Consequently, outsourcing the deferral of the respective cost on the income statement. costs rose by EUR 4.4 million in 2002 to EUR 9.3 million. At the end of 2002, the amount to be imputed to future financial years was EUR 9.5 million.
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 31 Dec. 2002
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 4.0
2002 4.0 - - - 1.2 2.9 Total 45.3 2.1 7.8 13.0 12.9 9.5 Table 33
Report | Financial review 89 Depreciation and amortisation Depreciation and amortisation decreased by 3.2%, that is, expansion of the traditional branch network, the launch and EUR 1.6 million, reflecting the deceleration in capital development of the virtual channels, and the preparation of expenditure following the sizeable investments of recent IT systems for year 2000 and the euro’s introduction. years, notably in 1999 and 2000, with the 20%
Additions and transfers, net of disposals and scrappings (net of depreciation) Amounts expressed in millions of euro 1999 2000 2001 2002
Intangible assets 14.8 16.3 10.1 6.5 Tangible fixed assets Premises 8.9 13.1 6.5 0.3 Computer hardware 16.6 13.6 10.9 6.3
Other tangible fixed assets 21.3 20.2 17.7 11.2 Capital expenditure in progress 33.6 (7.1) (6.8) 7.5 Of which, equipment 2.0 (3.7) 0.4 5.4 Tangible fixed assets 80.5 39.8 28.3 25.2 Total 95.3 56.1 38.4 31.6 Table 34
The biggest decreases in depreciation and amortisation that as a result of the much shorter depreciation and charges in 2002 occurred in intangible assets (EUR -0.8 amortisation periods, the slowdown in capital expenditure is million) and computer hardware (EUR -1.4 million), given mirrored more rapidly 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 2001 2002 ∆% 31 Dec. 2002
Intangible assets 12.6 11.8 (5.9%) 15.5 Tangible fixed assets Premises 9.7 10.1 3.4% 177.6 Computer hardware 14.8 13.4 (9.1%) 19.5 Other fixed assets 14.8 14.9 0.9% 58.5 Capital expenditure in progress - - - 35.5 Of which, equipment - - - 7.8 Tangible fixed assets 39.3 38.4 (2.3%) 291.1 Total 51.8 50.2 (3.2%) 306.6 Table 35
90 Banco BPI | Annual Report 2002 Provisions Loan provisions increased by EUR 25.8 million to EUR In 2002 country-risk provisions totalling EUR 27.8 million, 66.1 million, which corresponds to 25.4% of net operating which had been created to cover the shareholders’ equity of income before provisions. Provisioning for specific loan the former Luanda branch of Banco BPI, were reversed. This default situations entailed setting aside (net of reversals) a reversal is explained by the fact that, within the ambit of the further EUR 58.6 million, or EUR 39.3 million more than in transformation of the forementioned branch into a bank 2001. Of this amount, some EUR 20 million corresponds to subject to local law, part of the shareholders’ equity was the provisioning of a specific Customer loan in default. converted into a loan of EUR 60 million from Banco BPI to the new bank. This loan is guaranteed by a deposit in euro of On the other side, provisions for general credit risks were the same amount. responsible for the increased provisioning in the more buoyant growth phases of lending1, since they are indexed to This loan is to be repaid in 10 equal and consecutive six- the expansion in the loan portfolio. The amounts set aside -monthly instalments, the first of which took place in for general credit risks, therefore, totalled EUR 7.5 million in December 2002. 2002, which represents a decrease of EUR 13.5 million in relation to the year before. Provisions (profit and loss account) Amounts expressed in millions of euro 2001 2002 ∆%
The amounts provided for diminution in the value of Specific loan provisions 19.2 58.6 204.7% General loan provisions 21.1 7.5 (64.2%) securities and investments and charged in the income Total provisions for Customer loans 40.3 66.1 64.1% statement was EUR 19.5 million. Of this figure, EUR 2.6 For unrealised losses on securities and million refers to the provisioning of unrealised losses on participating interests 10.7 19.5 investments, as required under Bank of Portugal Notice For country risk (2.0) (29.4) For sundry risks 33.1 1.7 4 / 2002. Other 2.4 10.2 Total 84.5 68.1 (19.4%)
In addition, in terms of the transitional regime for the Table 36 provisioning of unrealised losses, at 30 June 2002 (date the regime came into force) and with respect to investments acquired up till 31 December 2001, provisions were created in the amount of EUR 19.0 million by charging reserves and, therefore, had no impact on net profit for 2002.
1) The growth in the loan portfolio requires the compulsory creation of provisions for general credit risks equivalent to 1% of the new loans advanced (1.5%, in the case of consumer credit).
Report | Financial review 91 Net extraordinary items
Net extraordinary items in 2002 were negative to the extent Net extraordinary items Amounts expressed in millions of euro of EUR 5.3 million, compared with a positive figure of EUR 2001 2002 5.0 million in the preceding year. Capital gains on the sale of fixed assets 7.9 21.0 Pension-related costs Incentives for early retirement (4.5) (13.0) The behaviour of net extraordinary items essentially reflects: Amortisation of additional pension obligations due to early retirements (4.5) (10.4)
– capital gains of EUR 22.0 million realised in 2002 from Of which, relating to those concluded in 2001 (4.5) (4.5) Of which, relating to those concluded in 2002 - (5.9) the sale of the participating interests in Brisa and BVLP; Amortisation of the additional pension obligations due to non-utilisation of disability decreases - (8.5) – the increase in pension-related costs, from EUR 9.0 Other pension-related costs (0.1) (0.2) million in 2001 to EUR 32.0 million in 2002. Pension-related costs (9.0) (32.0) Other 6.2 5.7 Total 5.0 (5.3) The impact on 2002’s results of early-retirement costs Table 37 amounted to EUR 23.4 million, of which EUR 18.8 million refers to those concluded in 2002 (440 early retirements) At the end of 2002, the following had still to be recognised and EUR 4.5 million corresponding to the annual write-down in the income statement: of the accrual of the additional obligations arising from the early retirements realised in the second half of 20011. – EUR 90.8 million is being and will be recognised as a charge over a maximum period of 10 years, of which Net extraordinary items in 2002 also include, for the first EUR 87.0 million refers to the additional obligations time, a cost of EUR 8.5 million relating to the pension fund stemming from early retirements; contributions to cover the increase in obligations stemming from the non-utilisation, in the actuarial calculation, of the – EUR 87.9 million refers to the additional obligations disability decreases, in accordance to the Bank of Portugal stemming from the non-utilisation, in the actuarial new regulations, which were issued in 2001 and came into calculation, of the disability decreases. This amount is force in 2002. being funded and recognised in the financial statements up until 2021 by means of a uniform instalment plan.
1) In 2001, 67 early retirement accords were concluded in the first half of the year and 248 in the second. In June 2001, the full amortisation (against reserves) was effected of the contributions to cover the additional obligations associated with the early retirements concluded in 1999, 2000 and the first half of 2001, and which had not yet been recognised as costs, with the result that the charge recognised in 2001 refers only to early retirements concluded in the second half of the year.
92 Banco BPI | Annual Report 2002 Results of equity-accounted subsidiaries Minority shareholders’ interests Subsidiaries consolidated using the equity method made a Minority shareholders’ share of profit amounted to EUR 9.8 contribution of EUR 7.9 million to consolidated earnings, million in 2002 (EUR 17.3 million in 2001). This decrease whereas in 2001 this contribution had been EUR 14.5 is explained by the lower dividends paid on the preference million. shares issued by BPI Capital Finance (EUR 9.9 million in 2002 against EUR 17.5 million in 2001) due to the dollar’s The biggest contribution (EUR 4.4 million) was generated depreciation against the euro. in 2002 by asset management activity carried out by BPI Pensões (pension fund management) and BPI Vida (capitalisation insurance).
Report | Financial review 93 BALANCE SHEET
Net total assets at 31 December 2002 totalled EUR 2002. Mortgage loans (which expanded 25.6%) were the 25 669.1 million, which corresponds to an increase of most dynamic component of the loan portfolio, accounting 3.5% vis-à-vis the end of 2001. for roughly 40% of the consolidated loan portfolio at the end of 2002. The Customer loan portfolio grew 7.2% to EUR 16 472.6 million, accounting for 64% of total assets at the end of
Balance sheet Amounts expressed in millions of euro 2001 2002 ∆%
Assets (net)
Liquid assets 860.4 854.2 (0.7%) Loans to credit institutions 3 512.3 3 168.2 (9.8%) Loans to Customers 15 372.1 16 472.6 7.2% Bonds portfolio 2 704.9 2 856.8 5.6% Equities portfolio 155.4 149.7 (3.7%) Investments 827.1 641.1 (22.5%) Fixed assets 325.1 306.6 (5.7%) Sundry assets 1 035.5 1 219.9 17.8% Total assets 24 792.9 25 669.1 3.5% Liabilities and shareholders’ equity Amounts owed to credit institutions 6 692.8 6 627.3 (1.0%) Amounts owed to Customers1 12 053.1 12 330.9 2.3% Debt securities 3 121.7 3 541.4 13.4% Sundry liabilities 828.9 901.8 8.8% Provisions and fund for general banking risks 251.7 220.0 (12.6%) Subordinated debt 631.1 625.7 (0.9%) Minority shareholders’ interests 304.9 253.1 (17.0%) Subscribed share capital 645.6 760.0 17.7% Reserves 129.8 268.8 107.1% Net profit 133.3 140.1 5.1% Total shareholders’ equity 908.7 1 168.9 28.6% Total liabilities and shareholders’ equity 24 792.9 25 669.1 3.5% Note Average total assets 23 462.4 24 996.6 6.5% Off-balance sheet Customer resources taken2 4 753.0 4 716.5 (0.8%)
1) Customer deposits and other resources, namely, cheques and payment orders, securities sales with repurchase agreements. Table 38 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.
94 Banco BPI | Annual Report 2002 The 4.9% increase in Customers resources carried in the Net total assets and Loans1 to Customers and disintermediation guarantees balance sheet (deposits, structured products and fixed-rate Bi.€ Bi.€ bonds placed with Customers) was accompanied by the issue 32 24 29.1 29.6 of medium and long-term debt placed with institutional 26.3 19.7 18.8 Clients. At the end of 2002, the transformation ratio of more 24 18 16.5 20.8 stable resources (Customer resources and medium and long- 19.9 -term issues) into credit was 101.4%. For their part, off- 12.0 16 12 -balance sheet resources (chiefly, unit trust funds) registered 9.9 a drop of 0.8%.
8 6 Loans to Customers The loan portfolio grew 7.2%, reflecting the differentiated 0 0 approach by segments, namely, the continued priority 98 99 00 01 02 98 99 00 01 02 attributed to mortgage loans and greater lending selectivity, Net total assets1 Other loans to Customers in particular, in the large corporates segment. Underlying the Disintermediation Mortgage loans Guarantees strategy adopted was the quest for securing a return on 1) Corrected for duplication of balances. 1) Gross loan portfolio. shareholder’s equity employed that is commensurate with the risk assumed, taking into consideration the deceleration in Chart 40 Chart 41 economic activity and the consequent deterioration in the business environment for companies. The mortgage finance Net total assets Liabilities and Shareholders’ portfolio rose by 25.6%, by far outpacing the estimated breakdown equity breakdown 2002 2002 average market growth of 15.7%1. The weight of mortgage finance relative to the total performing loan portfolio climbed from 34% in 2001 to 40% in 2002.
Loans to large companies (including wholesale banking) declined by 10.7% (the estimated market growth in loans to Loans to Customers (64.2%) Amounts owed to Customers non-financial companies was 5.3%1) and constituted the Bonds and equities (48.0%) portfolio (11.7%) Debt securities (13.8%) principal factor contributing to the deceleration in the overall Investments (2.5%) Other liabilities (4.4%) Fixed assets and other Shareholders’ equity, portfolio’s growth rate. (5.9%) minority interests and Liquidity assets and loans subordinated debt (8.0%) to credit institutions Amounts owed to credit (15.7%) institutions (25.8%)
Chart 42 Chart 43
1) Year-on-year changes in December 2002; source: Bank of Portugal, "Economic indicators, January 2003".
Report | Financial review 95 Customer loan portfolio Amounts expressed in millions of euro 2001 % 2002 % ∆%
Corporate and Institutional Banking and Project Finance Wholesale Banking 2 435.7 16% 2 128.4 13% (12.6%) Large companies 1 399.8 9% 1 296.7 8% (7.4%) Medium-sized companies 1 869.5 12% 1 811.5 11% (3.1%) Project Finance 271.6 2% 356.4 2% 31.2% Institutional Banking 361.4 2% 499.0 3% 38.1% Subtotal 6 338.1 41% 6 092.1 37% (3.9%) Loans to individuals and small businesses Mortgage loans 5 187.2 34% 6 515.5 40% 25.6%
Loans to individuals – other purposes 662.5 4% 650.7 4% (1.8%) Loans to small businesses 1 160.9 8% 1 172.5 7% 1.0% Subtotal 7 010.6 46% 8 338.7 51% 18.9% Leasing 1 013.5 7% 996.3 6% (1.7%) Factoring 300.9 2% 305.8 2% 1.6% Other 633.6 4% 628.3 4% (0.8%) Portfolio of performing loans 15 296.6 100% 16 361.2 100% 7.0% Total loans in arrears 174.4 254.0 45.6% Specific provisions 98.9 142.6 44.2% Consolidated net loan portfolio 15 372.1 16 472.6 7.2% Motor car and equipment finance (long term rental)1 273.1 266.1 (2.5%) Bank guarantees 3 297.9 3 122.8 (5.3%)
1) Loans granted by equity-accounted Group companies, with the result that the amount of the respective credit granted is not reflected Table 39 in the consolidated balance sheet. Motor car finance business in the form of long-term rental is conducted exclusively by BPI Rent.
At the end of 2002, the portfolio of variable-rate mortgage Mortgage loans – breakdown by type of rate loans represented 98.5% of the total portfolio. Variable-rate 2001 2002 finance is indexed directly to market rates, with an average Variable rate 98.2% 98.5% Fixed rate 1.8% 1.5% repricing period of about six months. Total 100% 100% Table 40
96 Banco BPI | Annual Report 2002 Portfolio of securities and participating interests At 31 December 2002, the BPI Group’s portfolio of – the reduction during the year of EUR 331.7 million in the securities and participating interests amounted to bonds and commercial paper portfolio (of the investment EUR 3 660.2 million, that is, 0.6% less than at the end portfolio) of national private issuers, associated with the of 2001. management of credit exposures and portfolio returns / / risk; The most salient aspects relating to the portfolio’s performance were the following: – the sale of the participating interests in Brisa and BVLP, the balance sheet value of which was EUR 158.5 million – the increase in the bonds of public-sector issuers in the and generated capital gains of EUR 22.0 million. dealing and investment portfolios, notably in the final quarter of 2002, associated with the increase in trading At the end of 2002, the dealing portfolio represented 5.7% activity and the management of structural balance sheet of total assets, the investment portfolio 6.0% and the positions; participating interests’ portfolio 2.5%.
Securities and participating interests portfolio Amounts expressed in millions of euro 2001 % 2002 % ∆%
Dealing portfolio Bonds of public-sector issuers 1 068.2 29% 1 384.0 38% 29.6% Bonds of other issuers 0.5 0% 0.6 0% 6.1% Equities and other variable-yield securities 54.8 1% 73.1 2% 33.3% Subtotal 1 123.6 31% 1 457.7 40% 29.7% Investment portfolio Bonds of public-sector issuers 450.1 12% 761.0 21% 69.1% Bonds of international financial bodies 166.7 5% 160.0 4% (4.0%) Bonds of other issuers 1 019.3 28% 551.2 15% (45.9%) Equities and other variable-yield securities 100.6 3% 76.6 2% (23.9%)
Subtotal 1 736.7 47% 1 548.8 42% (10.8%) Participating interests Investments1 777.3 21% 592.1 16% (23.8%) Other financial assets2 44.1 1% 61.6 2% 39.7% Subtotal 821.4 22% 653.7 18% (20.4%) Total 3 681.7 100% 3 660.2 100% (0.6%) 1) Investments in associated companies and other participating interests. Table 41 2) Recorded in the item "other assets"; does not include loans.
Report | Financial review 97 In 2002, in terms of the transitional regime contemplated in Coverage of unrealised capital losses in participating interests under Bank of Portugal notice 4 / 2002 Amounts expressed in millions of euro Notice no. 4 / 2002, provisions were created in the amount 31 December 2002 of EUR 19 million, by a direct charge against reserves (and, Gross balance sheet value (net of deferred capital gains) 507.9 therefore, with no impact on the income statement), and Unrealised losses 278.7 provisions of EUR 2.6 million charged directly to the income Corridor1 used 75.6 statement. On the other hand, only for purposes of Provisions 25.7 calculating the capital adequacy ratio, EUR 33.1 million Of which, accumulated at 31 Dec. 01 4.1 Amounts provided in 2002 21.6 own funds (Tier II) were written off. The overall amount Losses after use of the corridor and net of provisions 177.5 deducted from own funds in 2002 (including the above- Deduction to own funds for the purposes of calculating mentioned provisions) was, therefore, EUR 54.7 million. the own funds requirements ratio 33.1 Losses to be covered (under the transitional regime) 144.4 Of which, amount of provisions to be set aside 57.0 At 31 December, after the abovementioned deductions and Amount to be deducted to own funds in terms of Notice 4 / 2002, the amount to be written off (from 2003 to 2006) 87.4 Table 42 against own funds was EUR 57 million by means of 1) The usable corridor corresponds to 15% of the gross balance sheet value, net of deferred capital gains. provisions and EUR 87.4 million by way of a write-off from Tier II, in the calculation of the capital adequacy ratio, thereby making a total of EUR 144.4 million. BPI envisages setting aside the forementioned provisions in full in 2003 and effecting the write-off from Tier II in such a manner as to meet the percentage cover prescribed in Notice 4 / 2002: 50% in 2003, 75% in 2004, 90% in 2005, 100% in 2006.
A new regime came into effect in June 2002 requiring the For the losses at 30 June 2002 (date on which Notice provisioning and the deduction from own funds of unrealised 4 / 2002 came into force) on participating interests acquired losses in the portfolio of participating interests, in entities not up until 31 December 2001, a transitional regime was subject to supervision by the Bank of Portugal or the Insurance defined. The transitional regime establishes minimum and Institute of Portugal, whenever such losses exceed 15% of the gradual provisioning levels and deductions for own funds up corresponding acquisition amount (Bank of Portugal Notice until 2006. 4 / 2002). The transitional regime permits that in 2002 and 2003 Of the amount of unrealised losses which exceed 15% of the provisions can be created by charging reserves directly, with acquisition value, a minimum of 40% must be covered by the result that there is no impact in the income statements. provisions, while the remainder has to be deducted from own funds for purposes of calculating the own funds requirements ratio.
98 Banco BPI | Annual Report 2002 Customer resources Total Customer resources1 Customer resources carried in the balance sheet grew 4.9% Bi.€ as a consequence of the 6.4% rise in deposits. 20 17.4 17.6 16.5 The base of outside resources has been complemented by 14.8 15 13.9 the issue of medium and long-term debt placed with institutional investors. At the end of 2002, total resources 10 taken stood at EUR 16 391.7 million, up 7.5% on the 2001 Off-balance sheet Customer resources figure. At the end of 2002, loans to Customers (gross) were On-balance sheet Customer resources equivalent to 101.4% of the more stable outside resources. 5
1) Corrected for duplication of balances. 0 98 99 00 01 02 Chart 44
Total balance sheet resources Amounts expressed in millions of euro 2001 % 2002 % ∆%
Customer resources Sight deposits 4 706.0 31% 4 922.1 30% 4.6% Term and savings deposits 6 788.3 45% 7 302.4 45% 7.6% Structured products – guaranteed capital / limited risk, and fixed-rate bonds 1 573.8 10% 1 486.3 9% (5.6%) Customer resources 13 068.1 86% 13 710.9 84% 4.9% Debt securities placed with institutional investors 1 547.9 10% 2 055.1 13% 32.8% Subordinated debt 631.1 4% 625.7 4% (0.9%) Total balance sheet resources 15 247.2 100% 16 391.7 100% 7.5% Transformation ratio of total resources into loans 101.5% 101.4%
Table 43
The globally negative behaviour of the equities market Total Customer resources Amounts expressed in millions of euro continued to influence the growth of off-balance sheet 2001 2002 ∆% resources, in particular, equity and balanced unit trust On-balance sheet resources 13 068.1 13 710.9 4.9% Off-balance sheet resources funds, by favouring the investment in lower-risk products, Unit trust (mutual) funds 2 670.3 2 458.3 (7.9%) namely, money market funds and capitalisation insurance. Retirement (PPR) and equity (PPA) savings plans 1 203.9 1 194.4 (0.8%) The same factor also gave origin to the re-intermediation of Capitalisation insurance 878.9 1 063.8 21.0% certain resources through the transfer of placements to Subtotal 4 753.0 4 716.5 (0.8%) deposits. Elimination of double recording1 (418.3) (780.0) Total Customer resources 17 402.9 17 647.5 1.4%
Note: total resources corrected for duplication. Table 44 1) Placements in deposits of the unit trust funds and of a company managing capitalisation products.
Report | Financial review 99 Shareholders’ equity Shareholders’ equity evolution in 2002 M.€ Shareholders’ equity totalled EUR 1 168.9 million at the 1 600 end of 2002. 140.1 57.9 -22.2 1 168.9 1 200 200.2
Shareholders’ equity Amounts expressed in millions of euro 908.7 2001 2002 800
Shareholders’ equity at beginning of the year 930.0 908.7 Previous year’s dividends paid (58.1) (57.9) 400 Net profit 133.3 140.1 0 Cash proceeds from capital increase in May 2002 - 200.2 Shareholders’ Capital Net 2001 Other Shareholders’ equity at increase profit dividends equity at Provisions for participating interests Dec. 01 payment Dec. 02 (Notice no. 4 / 2002) - (19.0) Amortisation of pension fund contributions due Chart 45 to early retirements (80.4) - Goodwill paid on the acquisition of participating interests (14.7) - Other (1.4) (3.1) Shareholders’ equity at the end of the year 908.7 1 168.9 Of which: capital, reserves and retained earnings1 1 106.7 Dividend declared for the year 60.8 Revaluation reserves 1.4 1) After deduction of dividends payable for the year Table 45 (does not include revaluation reserves).
100 Banco BPI | Annual Report 2002 Own funds The principal factors behind the trend in own funds were: – having a negative impact: cover for the unrealised losses on participating interests (with an impact of the capital – having a positive impact: the net profit for the year and base of EUR 54.7 million1) and the conclusion in the year proceeds from the capital increase; of 440 early retirements, which entailed contributions to the pension funds in order to cover the increased obligations in the amount of EUR 57.4 million2.
Own funds Amounts expressed in millions of euro 2001 2002
Share capital, reserves and earnings1 827.9 1 106.7 Minority interests 287.4 243.2 Of which, preference shares 282.5 238.4 Fund for general banking risks - 1.0 Contributions to the pension fund still not disclosed as cost (41.3) (89.3) Intangible assets (44.1) (29.1) Treasury stock (1.7) (3.0) Basis own funds 1 028.3 1 229.5 Revaluation reserves 22.6 1.4 Perpetual subordinated debt 139.4 135.1 Participating units 17.7 16.4 Non-perpetual subordinated debt 439.1 409.5 Complementary own funds 618.8 562.4 Deduction of participating interests (31.7) (31.6) Securities acquired in securitisation operations (5.7) (4.8) Unrealised losses in participating interests not provided for - (33.1) Other deductions (8.8) (10.5) Deductions (46.1) (80.0)
Supplementary own funds 1.2 - Total own funds 1 602.1 1 711.9
1) After deduction of dividend payable for the year. Table 46
1) The impact on basis own funds was EUR 21.6 million through the creation of provisions (EUR 2.6 million set aside against earnings and provisions of EUR 19.0 million set aside against reserves, in accordance with the transitional regime) and the write-off of EUR 33.1 million from complementary own funds for purposes of calculating the ratio. 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 against basis own funds. In 2002, of the amount of EUR 57.4 million of contributions to the pension fund, EUR 5.9 million has already been recognised in the income statement.
Report | Financial review 101 Own funds requirements The loan portfolio, which expanded 7.2%, required a further own funds needs and the decrease in the portfolio of EUR 31.7 million in own funds (+3.3%), which reflects on participating interests and market risks. the one hand the rise in mortgage lending, which is characterised by a lower consumption of capital, and on the The capital required to cover the risks associated with the other, the reduction in lending to companies. Total own dealing portfolio and the positions in foreign currency funds requirements decreased 4.0% (EUR -55.7 million) as represents only 1.5% of total own funds requirements. a result chiefly of the reduction in the bond portfolio’s
Own funds requirements Amounts expressed in millions of euro 2001 2002 Assets (net) Weighted Risk-weighted Assets (net) Weighted Risk-weighted (balance sheet average assets (balance sheet average assets value) coefficient value) coefficient Liquid assets 866.0 8.2% 70.7 855.5 7.7% 66.0 Loans to credit institutions 2 322.0 17.6% 409.4 1 794.8 20.4% 367.0 Loans to Customers 15 372.1 78.9% 12 127.9 16 472.6 76.0% 12 524.1 Bonds and equities portfolio 1 625.3 59.0% 958.3 1 541.9 35.4% 546.2 Investments 798.9 100.0% 798.9 654.5 100.0% 654.5 Tangible fixed assets 304.3 100.0% 304.3 291.1 100.0% 291.1 Sundry assets 468.4 76.4% 358.1 442.0 56.9% 251.4 Assets 21 757.1 69.1% 15 027.6 22 052.4 66.7% 14 700.3 Off-balance sheet items 2 075.1 1 984.9 (-) Provisions for general credit risks (180.9) (188.4) Risk weighted assets 16 921.8 16 496.8 Credit risks (weighted assets x 8%) 1 353.7 1 319.7 Securitisation operations 9.7 2.7 Market risks 35.3 20.7 Total own funds requirements 1 398.8 1 343.1
Total requirements x 12.5 17 484.6 16 788.6
Table 47
102 Banco BPI | Annual Report 2002 Own funds requirements ratio
At 31 December 2002, the own funds requirements ratio Own funds and own funds Own funds requirements requirements was situated at 10.2% and the Tier I ratio at 7.3%. ratio At 31 December 2002 Bi.€ 2.0 Own funds requirements ratio Amounts expressed in millions of euro 11.4% 1.7 10.2% 2001 2002 1.6 4.0% 1.5 2.9% Total own funds 1 602.1 1 711.9 1.5 Of which, basis own funds 1 028.3 1 229.5 1.3 1.4% 1.4% 1.1 Total own funds requirements 1 398.8 1 343.1 5.9% 6.0% Total own funds requirements x 12.5 17 484.6 16 788.6 1.0 Own funds requirements ratio 9.2% 10.2% Tier I 5.9% 7.3% 0.5 Table 48 Bank of Portugal BIS
The capital adequacy ratio calculated according to BIS 0 98 99 00 01 02 Core Capital (Bank of International Settlements) rules stood at 11.4% at Preference shares Tier II 31 December 2002 and Tier I at 7.4%. Own funds Own funds requirements
Chart 46 Chart 47
Report | Financial review 103 Pension obligations At 31 December 2002, the Group’s pension funds had net The alteration cited above gave origin to an increase in the assets which guaranteed the complete financing of pension present value of pension obligations, which is being funded obligations recognised in the balance sheet and 94.0% of and recognised in the financial statements by way of a plan of total pension obligations. uniform instalments commencing in 2002 and extending over a maximum period of 20 years. At 31 December 2002, the At the end of 2001 with the entry into force of the present amount still to be funded was EUR 87.9 million. regulatory framework relating to cover of pension obligations (Bank of Portugal Notice no. 12 / 2001), it ceased to be possible to use the disability decreases in the calculation of the present value of obligations.
Pension obligations cover Amounts expressed in millions of euro 2001 2002
Obligations for current pensions under payment 1 014.3 1 134.3 Obligations for past services of current Employees 335.5 315.4 Total pensions obligations1 1 349.8 1 449.7 Disability decreases 90.1 87.9 Total obligations recognised in the balance sheet 1 259.7 1 361.8 Pension funds 1 256.6 1 363.3 Contributions to be transferred to the fund 3.2 0.0 Total financing 1 259.8 1 363.4 Financing of obligations recognised in the balance sheet 100.0% 100.1% Financing of total pension obligations 93.3% 94.0%
1) Taking into account the disability decreases in the calculation of the obligations. Table 49
In 2002, the pension funds achieved an annual average At 31 December 2002, of the usable corridor of EUR 145.0 return of 3.1%, which entailed extraordinary contributions of million, EUR 120.4 million had been used (EUR 71.2 EUR 49.2 million earmarked to overcome the negative million in negative variances recorded in 2001 and EUR variance between the funds’ actual returns and the actuarial 49.2 million in 2002), thus leaving a margin not yet used of and financial assumptions. These contributions fall within EUR 24.6 million in the corridor. the "corridor" contemplated by the regime for pension- -obligation cover for the purpose of accommodating these variances. Consequently, they do not give rise to any impact in the income statement.
104 Banco BPI | Annual Report 2002 Pension obligations – Regulatory framework The most significant aspects of the present regulatory In this regard, the actuarial losses (gains) identified: framework relating to pension obligations’ cover (Bank of Portugal Notices 12 / 2001 and 7 / 2002) in force since the – are recorded under the caption "valuation fluctuations" (in end of 2001, are: the accrual and deferral accounts), until the accumulated amount is equal to the limit defined by the "corridor", and do – the mandatory requirement that the net assets of the funds not give rise to any impact in the income statement; guarantee a minimum cover of 100% of current pensions, whilst in the case of obligations for past services, a minimum – the portion situated outside the interval is recorded as a cover of 95% was laid down; deferred cost or income item (in the accrual, deferral and other accounts) and recognised in the income statement at – the non-usage of the disability decreases1, in the calculation least for 10%, starting in the following year to the one in of the present value of the obligations for past services of which it is computed. current Employees;
– the increases in obligations for early retirements and changes to actuarial assumptions are recorded as a deferred cost in the accruals and deferral account. These amounts are recognised as a cost in the extraordinary items account, at least for 10%, starting in the following year to the one in which they are identified;
– the losses and gains resulting from the variance between the actuarial assumptions2 and the actual values (actuarial gains and losses) have two distinct accounting treatments depending on whether the accumulated figure exceeds or not a predetermined interval ("corridor"). The "corridor" corresponds to 10% of the greater of the amounts of pension obligations or the pension funds’ net assets (with reference to the end of each year).
1) Decrease in the present value of obligations as a result of taking into account the probability of Employees ceasing to form part of the staff complement as a result of disability before the normal retirement age. 2) In the same manner, the decreases in the amount of pension obligations which resulted from changes to the actuarial assumptions are disclosed as income in the income statement over a maximum period of 10 years.
Report | Financial review 105 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 cover of retirement obligations by pension funds or by an implemented directed at modernising and enhancing the insurance contract serving the same purpose, 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, translating itself into the implementation of an early-retirement programme. This entailed a large financial The Group’s pension funds fully guarantee the old age, commitment aimed at covering the increase in pension disability and survivors’ pensions of the banks’ Employees and obligations. In the period 1995 to 2002, a total of 2 942 early former Employees (Banco BPI and Banco Português de retirements have been realised that led to an increase of EUR Investimento) and of the subsidiaries which adhered to the 422 million in pension obligations. Vertical Collective Employment Agreement (BPI Fundos and Inter-Risco). Within the ambit of the strategic programme for the period 2002-2004, aimed at reducing costs and improve efficiency is At the end of 2002, the net assets of the funds totalled EUR under way an early-retirements programme, following which, in 1.363.3 million (which exceeds the Group’s shareholders’ 2002, have already been concluded 440. equity of EUR 1 168.9 million on the same date) and encompassed a universe of 6 786 current Employees 6 165 Pension funds assets and BPI Group Employees pension pensioners and 970 former Employees. liabilities M.€ 1 400 Recapitalisation of the pension funds
When the Group ventured into Commercial Banking in 1991 1 050 with the acquisition of Banco Fonsecas & Burnay (BFB), BFB had a pension fund shortfall of EUR 128 million (of which 700 EUR 89 million refers to obligations for current pension payments and EUR 39 million to pension obligations for the 350 past services of current Employees). Hence at the time of the acquisition, the shortfall in pension fund net assets to meet 0 91 92 93 94 95 96 97 98 99 00 01 02 the obligations of current pension payments was covered by provisions carried in the balance sheet. Pension funds Chart 48 Past service liabilities to be covered in the year
As a consequence of the considerable financial effort made, at the end of 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.
1) The cover shortfall related with the past services liabilities for BFB Employees in the payroll at 31 December 1994 was being financed over a 20 year period according to Bank of Portugal requirements.
106 Banco BPI | Annual Report 2002 Returns In 2002 the BPI Group’s pension funds achieved an annual of the Group’s pension funds, presented the following average return of 3.3%. This result can be considered as being composition: very positive when viewed against the background of historically low interest rates and the negative performance of Breakdown of Banco BPI Employees pension funds assets the equity markets (which, when measured by the Dow Jones At 31 December 2002 STOXX 600 index, registered a fall of 32.5%).
Liquidity (26.4%) Since 31 December 1991, the Group’s pension funds have Variable-rate bonds (13.6%) Fixed-rate bonds (27.6%) earned an annual average return of 11.0%, while with the pay Foreign equities (5.9%) Domestic equities (13.1%) increases awarded under the Banking Sector’s ACTV salary Real estate (13.5%) scale averaged 4.4% and the pension fund market’s return Chart 49 median was 8.3%.
At 31 December 2002, the Banco BPI Pension Fund’s portfolio, which corresponded to 98% of the total net assets
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 16.1 16.0 14.1 15 16.1 14.1 17.3 11.5 15 14.4 13.2 10.9 8.6 10 6.7 11.3 10.5 10.9 7.4 10 8.6 5.7 7.4 5 5.7 6.9 8.9 6.5 1.9 3.3 4.5 4.4 5 5.5 5.2 3.9 3.6 3.3 3.0 3.3 3.3 0 1.2 4.0 4.1 3.9 3.1 2.8 2.3 2.9 3.3 -2.0 2.2 1.9 3.2 -3.3 0 -5 92 93 94 95 96 97 98 99 00 01 02 92 93 94 95 96 97 98 99 00 01 02
BPI Group Employees pension funds return Chart 50 BPI Group Employees pension funds return Chart 51 ACTV salary scale review Pension funds market’s return median Inflation rate
Report | Financial review 107 Risk management
Risk management at the BPI Group is based on the After an evaluation of exposure, specific approval for credit permanent identification and analysis of exposure to operations follows the principles and procedures laid down in different risks – counterparty risk, country risk, market risks, the Credit Regulations. For each one of the different liquidity risk, operating and legal risks – and on the adoption divisions involved, the relevant hierarchical levels for the of strategies aimed at maximising profitability within approval of credit according to their characteristics have predefined and duly supervised limits. Management is been defined with the object of decentralising decisions and, complemented a posteriori by analysis of performance therefore, ensuring processing speed and efficacy. Operations indicators. must fall within the pre-determined limits and must conform to the desired levels of return on the capital employed. CREDIT RISK Management process The approval of credit operations falls within various Credit risk associated with the possibility of actual default by strategies, including diversification by geographic area, a counterparty (or with the change in the economic value of sector, counterparty and maturity; the use of guarantees / a given instrument or portfolio stemming from a deterioration / collateral and margins; periodic payment / repayment in the risk quality of a counterparty) constitutes the primary schemes; legal preference clauses of the ISDA – risk factor inherent in the BPI Group’s business spectrum. International Swaps and Derivatives Association – and guarantees CSA – Credit Support Annex – in derivatives; Exposure to this risk is evaluated using different credit derivates or settlement clauses. complementary methods (expert system, ratings, scorings, filters, others). In addition to the routine review of Customer Prescribed counterparty, market, maturity, product or selection filters and scorings for consumption and credit currency limits are adhered to taking into account the degree cards, a review is currently under way of the rating system of risk, the Customer’s borrowing capacity, relationship with for companies with a view to adapting it to the Basel II the Bank (including past experience relating to the use of requirements, coupled with the introduction of ratings and limits and Customer profitability), as well as BPI’s own size. scorings in the other segments of activity in accordance with the same requirements.
108 Banco BPI | Annual Report 2002 Subsequently, the Bank maintains constant vigilance over cover indices, write-offs and recoveries are analysed every the evolution of its exposure (including resorting to a warning month. The alert signalling non-performing loans is available system in the case of companies) and the results and on-line via the internal network for the information of the profitability indices achieved vis-à-vis the risks assumed. Bank’s managers. Moreover, problematic credit situations, provisioning
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 responsability 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 9
An estimate is also made of the actual (or near actual) losses Functioning as agents controlling this entire management arising from default (named "economic provisions") in such a process, besides the Management Board, the Internal Control way as to assess the adequacy of accounting provisions. The Committee and the Executive Commission for Credit Risks, economic provisions are object of a monthly assessment by are the Risk Control and Analysis Advisory Unit, the Internal the Executive Commission of the Management Board and External Auditors and the Bank of Portugal for whom the (Executive Commission for Credit Risks) and audited external auditors of the banks prepare, since 2002, a half- annually by the external auditors. These reports are also year report on the adequacy of accounting provisions vis-à-vis regularly reviewed by Internal Control Committee. economic provisions.
Recovery is the responsibility of either the Credit Risks Division (in the case of loans to companies and institutional Clients) or the Division which granted the loan (in the case of loans to individuals and small businesses), both of which use their own legal structures whenever necessary.
Report | Risk management 109 Credit Risks Division In 2002, Banco BPI implemented a new model for the analysis The Credit Risks Division is composed of three areas: and concession of credit risks at Corporate Banking. To this end, the Credit Risks Division was created which assumed Loan concession – responsible for loan concession analysis and responsibility for the control of credit risk at Corporate decisions. Banking. The new Division started functioning at the beginning of December. Monitoring – responsible for the prevention of default situations through the permanent oversight of the loan The Credit Risks Division’s organisation is based on the model portfolio, and for follow-up procedures in coordination with the created by Oliver & Wyman – the world leader in financial commercial divisions in cases of default for up to 60 days. services consultancy – which has been implemented successfully at international level. Recovery – responsible for recovery of non-performing loans outstanding for more than 60 days, backed by strong legal Within the context of global economic deceleration, endeavours support. were made to boost the quality of the loan portfolio through the setting up of this new Division, imposing greater discipline and The commercial divisions continue to play an important role in independence in the analysis of credit risk. Another objective the decision process, having analysed only those proposals was to prepare the Bank for the recommendations of the Basle which warranted approval. This will have to include qualitative II Committee. information, chiefly on companies which are Customers, their shareholders and managers.
Evaluation of credit risk exposure – companies, institutions, specialised finance Credit operations involving companies, institutions and The Credit Risks Division or, in the final instance, the project finance are evaluated by specialist analysts. Executive Committee for Credit Risks, complement this information on the probability of default with a qualitative BPI also uses an internal rating system for companies, with analysis of the company’s strategy and management (which five grades for evaluating loans, guarantees and securities of results in a possible overrule of the calculated rating), and medium-sized and large companies. The classification grade with an analysis of the information concerning the expected is determined on the basis of economic and financial ratios, or potential loss in the event of default (including in as well as indicators that take into account past experience, particular the analysis of collateral). commercial concept, incidents and risks associated with the market / sector in which the company operates.
110 Banco BPI | Annual Report 2002 According to the method for assessing risks and loan Evaluation of credit risk exposure – individuals and small approvals, the portfolio’s average risk is 46.1 – grade A, businesses which compares with 43.1 in 2001. In the individuals segment, there are different scoring systems and Customer selection filters. In the case of loans Internal rating for companies – breakdown of exposure by classes of risk backed by specific guarantees (housing, motor car), the Classes of risk 2000 2001 2002 probable loss is extremely low considering the financing / AAA (<10) 11.9% 12.6% 17.7% / guarantee ratio. AA (10-30) 18.6% 10.7% 7.3% A (30-50) 37.9% 37.1% 23.2% As regards other loans to individuals, Customer selection is B (50-70) 28.5% 34.1% 38.6% C (70-100) 3.1% 5.5% 13.2% primarily based on the assessment of the probability of Total 100% 100% 100% default, and loans are extended within predetermined limits. Average points 41.3 43.1 46.1 The overall acceptance or rejection indices are associated Table 50 with the desired minimum returns after taking into account These counterparty risk evaluation systems are complemented the attendant risks. by others, in particular, by the identification of major risks (concentration of exposure in a counterparty or Group) and by The analysis of counterparty risk in the small business the calculation of capital at risk, in accordance with the segment is conducted by the so-called expert system valuation enshrined in the regulation governing the capital involving, besides the analysis of the required guarantee / adequacy ratio or inspired from it. The portfolio is also globally / collateral, a subjective opinion concerning the probability of evaluated by the respective degree of geographical, sectorial default by the counterparty or the entity providing the and maturity diversification. guarantee.
Home loans The robust growth in this loan segment on the Portuguese The risk assessment of home loan operations in 2002 was kept market in recent years (repeated once more in 2002) can be within conservative and uniform patterns. On the other side, ascribed to the non-existence of a developed rental market; to BPI began IN 2002 to require a lower maximum limit in the the structural shock associated with the steep fall in interest financing / guarantee ratio (90%), in harmony with the less rates (substantially raising individuals’ disposable incomes); favourable evolution of the economic landscape in general, and and to the high confidence indices associated with low the property market in particular. In 2002 BPI also introduced unemployment rates, which only began to change direction in as compulsory requirement the credit protection insurance 2001 / 2002. Furthermore, the expansion in home loans at (providing unemployment and hospitalisation cover) for BPI is due to the general quality of the service provided, personal loans. innovations in the product and associated services, and the competitive pricing levels which conform with the varying risk levels (see chapter entitled Individuals Banking).
Report | Risk management 111 Evaluation of credit risk exposure – securities portfolio Evaluation of credit risk exposure – derivate operations Turning to the respective securities portfolio, BPI resorts Given the specific manner in which they are valued, credit primarily to information obtained from external rating risk stemming from derivative operations are accorded reports. The investment portfolio is predominantly composed special treatment. This has as its base the concept of the of the securities of low credit-risk issuers. substitution value, which is estimated daily by the risk- -management support system (AACR).
Bond and fixed-interest securities’ investment portfolio1 Amounts expressed in millions of euro In order to mitigate derivatives credit risk, besides resorting Rating 2002 % to contracts containing clauses which permit the setting off Aaa 258.8 29.7% Aa 87.0 10.0% of obligations in the event of default (even in the event of A 195.3 22.4% insolvency), the Group has entered into credit-risk limitation Baa 83.5 9.6% agreements with its most important counterparties in these Other / without rating (NR) 91.3 10.5% markets. These agreements, which entail the receipt (and Commercial paper (NR)2 157 18.0% payment) of collateral amounts for hedging risks between Total 872.9 100.0% counterparties, permitted a reduction in the substitution 1) Includes preference shares which are recorded in Table 51 the equities portfolio. value of the derivatives portfolio of some EUR 192 million 2) Non-rated commercial paper is guaranteed by credit institutions. at the end of 2002.
Evaluation of credit risk exposure – short-term interbank Current credit risk – substitution value of derivatives by type of counterparty Amounts expressed in millions of euro credit Counterparty 2001 % 2002 % Interbank counterparty risk is evaluated by the International BPI Group 5.6 3.1% 33.3 15.8% Division based on external ratings. The limits are defined in Unit trust / pension funds 5.8 3.2% 0.0 0.0% accordance with this risk, the institution’s size and the past Companies 10.7 5.9% 14.0 6.6% history of limits, and in conformity with BPI’s own size. Banks 159.0 87.8% 164.1 77.6% Total 181.1 100.0% 211.3 100.0% Notes: The total substitution value is the sum of the substitution values of the Table 52 The concentration indicators are not material, demonstrating counterparties, when positive. It does not include options inserted into bonds issued or bought. The substitution value incorporates the effect of the risk reduction that results a clear diversification of the interbank investments (by from the set-off of credit and debit balances between the same counterparties which serve as guarantee for compliance with obligations. quality counterparties with low risk).
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 Basel accord.
112 Banco BPI | Annual Report 2002 Default, provisioning and recovery levels
The choice of the exposure profiles using the evaluation Ratio of loans to Customers Provisioning cover of loans in arrears to Customers in arrears methods described before, together with the low average age % % of the portfolio (fruit of loan expansion), have resulted in the 4 240 210.0 portfolio’s good performance indicator and, in particular, in 194.2 the minimal default levels. 3 180 157.3
141.0 170.0 153.0 160.4 Globally, taking into account the defaults registered in the 2.1 2 120 135.8 130.3 different segments (companies, individuals, small 1.7 121.4 1.5 businesses), the loans in arrears for more than 90 days 1.8 1.4 1.1 1.1 amounted to EUR 216 million at the end of 2002, 1 1.3 60 1.0 corresponding to 1.3% of the gross loan portfolio, and was 0.9 153% covered by provisions. Recoveries of arrear loans 0 0 previously written off totalled EUR 14.7 million, against 98 99 00 01 02 98 99 00 01 02
EUR 18.9 million in 2001. Loans in arrears for more than Loans in arrears for more 30 days than 90 days Loans in arrears for more than Loans in arrears for more In this way, the increase in loans in arrears during the year 90 days than 30 days
(adjusted for write-offs and recoveries) amounted to 0.63% Chart 52 Chart 53 of the performing loan portfolio at the beginning of the year.
Net credit loss
% 2.0
1.5 1.33 1.34
1.0 1.14 0.53 0.83 1.04 0.71 0.39 0.54 0.5 0.29 0.29 0.29 0.54 0.12 0.37 0.61 0.0 0.15 0.13 0.18 0.15 -0.05 -0.08 -0.5 9293 94 95 96 97 98 99 00 01 02
Annual variation in loans in arrears for more than 30 days, adjusted by write-offs Net credit loss1
Note: as percentage of performing loan portfolio at the beginning of the year. 1) Annual variation in loans in arrears, adjusted by write-offs, less recoveries of loans in arrears previously written-off.
Chart 54
Report | Risk management 113 Loans to Customers in arrears and provisions Amounts expressed in millions of euro 2001 2002
Customer loans portfolio at the end of the year (gross) 15 471.0 16 615.2 Loans in arrears for more than 90 days at the beginning of the year 135.8 133.2 Net increase in loans in arrears 17.2 111.5 Write-offs (19.7) (28.5) Loans in arrears for more than 90 days at the end of the year 133.2 216.3 Recoveries 18.9 14.7 Total loan provisions at the beginning of the year 263.7 279.8 Increases (net of reversals) Specific for arrear loans and doubtful debts 19.2 58.6 Country risk (2.1) (1.6) General provisions 21.1 7.5 Transfer, currency revaluation and acquisition of credit from the EFTA Fund (2.4) 15.1 Write-offs (19.7) (28.5) Total loan provisions at the end of the year 279.8 331.0 Ratio of loans in arrears for more than 90 days 0.9% 1.3% Of loans in arrears for more than 90 days 210% 153% Loan loss in the year Net increase in loans in arrears for more than 90 days / Performing loan portfolio at beginning of the year 0.13% 0.73% (Net increase in loans in arrears for more than 90 days, recoveries of loans in arrears) / / Performing loan portfolio at beginning of the year (0.01%) 0.63%
Table 53
114 Banco BPI | Annual Report 2002 The following table presents the ratios of loans in arrears by This overdue credit was carried in the balance sheets of the market segment, as well as each segment’s contribution to commercial banks at the time of the acquisition by the the gross loan portfolio. In global terms, non-performing Group in 1991 and 1996. This loan was subsequently credit institution loans, portfolio securities and derivatives rescheduled, but is currently in default. are insignificant. The total of arrear loans to credit institutions refers to loans granted to a central bank.
Loans in arrears for more than 30 days by market segments 2001 2002 Loan portfolio (gross) as Ratio of Loan portfolio (gross) as Ratio of % of the consolidated loans in % of the consolidated loans in loan portfolio arrears loan portfolio arrears Corporate and Institutional Banking Wholesale Banking 16% 0.8% 13% 1.9% Large companies 9% 0.5% 8% 1.3% Medium-sized companies 12% 2.3% 11% 2.9% Project Finance 2% 0.0% 2% 0.0%
Institutional banking 2% 0.0% 3% 0.0% Subtotal 41% 1.1% 37% 1.8% Loans to individuals and small businesses Mortgage loans 34% 0.5% 39% 0.7% Loans to individuals – other purposes 4% 2.0% 4% 2.8% Loans to small companies and businesses 8% 2.3% 7% 2.9% Subtotal 46% 0.9% 51% 1.2% Leasing 7% 1.2% 6% 1.5% Factoring 2% 1.7% 2% 3.3% Other 4% 3.1% 4% 2.9% 100% 1.1% 100% 1.5%
1) The amount of non-performing loans in the factoring segment is essentially attributable to technical delays and, therefore, there is no real collection risk. Table 54 The ratio of factoring debt in arrears for more than 90 days was situated at 0.4% in 2002 and 0.3% in 2001.
The amount set aside for specific provisions for loans in arrears for more than one year represented 48.6% of the arrears and doubtful debts (net of reversals) was EUR 58.6 total amount of loans in arrears and were covered to the million in 2002. At the end of 2002, Customer loans in extent of 75% by specific provisions.
Age analysis of Customer loans in arrears (at 31 December 2002) Amounts expressed in millions of euro < 3 months 3-6 months 6-12 months 1-3 years > 3 years Total
Loans in arrears 38.0 27.0 65.5 85.5 37.9 254.0 % total 15.0% 10.6% 25.8% 33.7% 14.9% 100% Acumulated specific provisions 0.4 5.2 22.1 57.9 34.5 120.1
Table 55
Report | Risk management 115 COUNTRY RISK Country risk is very similar in terms of the respective effects to In addition, the operations defined as eligible are short-term counterparty risk and is associated with the changes or specific external trade finance, loans to certain multilateral banks, disturbances of a political, economic or financial nature in the medium-term operations with political risk cover or those places where the counterparties operate (or, more rarely, in a which, due to their structuring, are not subject to transfer risk. third country where the business takes place), which impede full compliance with the contract, irrespective of the Of the country-risk exposure (net of guarantees) in the amount counterparties’ will or capacity. The "country-risk" designation is of EUR 218.5 million, roughly 51% (EUR 112.3 million) is also used to classify the counterparty risk involved in loans to exempt from provisioning requirements under the regulations by state entities, given the similarity between the analysis methods virtue of the fact that they represent short-term external trade for county risk and those for a state’s counterparty risk financing operations, operations concluded with multilateral (sovereign risk). development banks, or are covered by political-risk insurance. However, pursuant to Bank of Portugal regulations governing Country-risk evaluation is carried out by the Bank’s country-risk provisioning and internal prudential measures, International Division, which resorts to published external another part of the exposure has been amply provided for ratings, and external and in-house studies. The Management (94.6%), with net exposure amounting to EUR 5.7 million, Board Executive Committee approves the list of countries in corresponding to 0.5% of the Group’s shareholders’ equity. The respect of which country-risk exposure is authorised. Eligible suspension of trade finance lines with Turkey and Brazil, countries considered are large-scale emerging markets which coupled with the euro’s appreciation vis-à-vis the dollar, explain embrace market economy principles, are open to international the continuing decrease in exposure which occurred in 2002 trade and are of strategic importance within the framework of (gross exposure of EUR 218.5 million in December 2002, the West’s politics. against EUR 417 million in December 2001).
Country-risk exposure (at 31 December 2002) Amounts expressed in millions of euro Exposure Exposure not subject to Exposure Provisions Exposure Country net of provisions (short-term subject to net of guarantees1 trade finance)2 provisions provisions Angola 99.8 99.8 99.8 Brazil 85.2 85.2 Hungary 3.9 3.9 0.4 3.5 Morocco 2.2 2.2 0.2 2.0 Turkey 3.3 3.3 Other3 24.1 23.8 0.3 0.1 0.2 Total 218.5 112.3 106.2 100.5 5.7 1) Net of residents’ guarantees, namely, the National Export Credit Agency, exporters or deposits. Table 56 2) Short-term financing operations for external trade, operations with multilateral Development Banks or those covered by political-risk insurance, are not subject to country-risk provisioning requirements. 3) Algeria, Panama, Cape Verde and Mozambique.
Excluding this exposure, the Bank also has direct country-risk exposure through its international financial holdings and its trading activity.
116 Banco BPI | Annual Report 2002 MARKET RISKS Market or price risk (interest rates, foreign exchange rates, Risk Control and Analysis Advisory Unit computes on a daily equity prices, commodity prices, others) is defined as the basis the VaR – Value at Risk – in accordance with possibility of incurring losses due to unexpected variations in standardised assumptions, in general, forming part of the the price of instruments or operations. BIS’s set of recommendations (normal distribution of changes in prices, indices and interest rates); evaluation of The assessment of treasury positions (short term) and the potential loss over a period of two weeks; 99% structural risk positions relating to interest or foreign confidence level; overall risk dependent upon correlations exchange rates (long term) is based on gap schedules between variations in prices, indices or interest rates). The (currency gaps, maturity gaps, duration gaps). exposure arising from options is controlled using specific models. The information produced by the Risk Evaluation To complement this evaluation process, and especially in and Control System is available on-line to authorised users. the case of assessing exposure in trading operations, the
Overall market risk1 Amounts expressed in millions of euro 1st quarter 2nd quarter 3rd quarter 4th quarter 2002
VaR (monthly average) 3.1 2.6 3.4 7.2 4.1 Interest rate risk 2.9 2.1 3.0 6.7 3.7 Currency risk 0.3 0.2 0.9 1.6 0.8 Equities risk 1.7 1.9 1.5 1.6 1.7 Commodities 0.0 0.0 0.0 0.0 0.0 VaR (maximum) 3.8 5.7 6.8 18.3 18.3
1) Maximum potential loss, with a 99% confidence level, resulting from an adverse movement in prices, indices and interest rates over a period of two weeks, Table 57 taking into consideration in the calculation of the overall risk the effect of the correlations of the returns. A normal distribution of returns is assumed.
The trading positions are managed independently by traders The long-term structural positions (interest rate or currency and kept within the exposure limits fixed and periodically risk) are managed in conformity with directives laid down by reviewed for each market or product. There are varying the Market Risks Executive Committee. A more proactive exposure limits, including overall VaR limits prescribed by management of this exposure in the realm of interest rate the Market Risks Executive Committee, that are risk is at the core of the controlled increase in the VaR in subsequently distributed autonomously amongst the 2002, with the attendant positive results (profits of EUR 5.1 various books by the divisions involved in trading activity. million). Anticipating the dollar’s weakening, BPI opted in Furthermore, stop-loss limits have also been laid down. the meantime, bearing in mind its investment in banking activity in Angola, to hedge against its structural currency The management of treasury positions has been delegated to exposure. the Financial Divisions, within the limits defined by the Management Board / Market Risks Executive Committee.
Report | Risk management 117 As concerns its structural position resulting from the long-term issues was embarked on in 2002, with around Investments portfolio, its market risk is not easily measured EUR 509 million having been raised. Medium and long-term by recourse to traditional methods such as the VaR, given debt now totals an overall figure of EUR 2 681 million. At the investment’s time horizon, or its lack of a quoted price the end of 2002, loans to Customers (gross) represented on the equities market. This portfolio’s performance and the almost 100% of the more stable outside (third party) relevant provisions are analysed in the financial review resources (Customer resources, debt securities and chapter. subordinated debt floated on the market).
LIQUIDITY RISK In the domain of interbank credit, the chief aim was Liquidity risk is monitored in its two facets: i) from the ensuring the greater diversification of counterparties with the standpoint of the tradability of the different assets; ii) from a object of guaranteeing more intense and diversified global perspective, whereby liquidity risk is defined continuous financing lines. according to the (in)ability to keep pace with the asset’s growth and to satisfy treasury needs without incurring OPERATING RISKS abnormal losses. Operating risks are defined as possible unexpected losses arising from human failure, shortcomings in internal control From the standpoint of the different assets, the various procedures and failures in the information systems or managers keep a constant watch over the transaction levels external causes. The definition excludes strategic errors and of the various instruments according to a series of indicators reputation risks. (BPI’s market share, number of days to unwind positions, size and volatility of spreads…), duly confined within the The responsibilities in the area of operating risks belong to operating limits set for each market. all the Bank’s departments and, in particular, to the Organisation Division. At global level, exposure assessment is conducted according to a liquidity schedule that permits the timely identification In this arena, management is founded primarily on the of gaps and their dynamic hedging. Moreover, the indicators training / quality of the human resources and on the relating to funding diversification by counterparties, respective proper organisation, namely the segregation of maturities and financial markets, are analyses. Managing this functions, the definition of responsibility, procedures and risk is the responsibility of the Group’s Market Risk Executive supervision. This is undertaken by two central units (one Committee and the Financial Division. geared to the distribution channels and the other to the other structures), as well as by the work of the internal and As for the overall management of liquidity, of particular note external auditors and the central management of alerts. in 2002 was the selective growth in loans subordinated to criteria relating to returns on shareholders’ equity and risk, The BPI Group also places special emphasis on the prior accompanied by the expansion in the solid base of Customer identification of critical points of operational dependency. resources (+4.9%) and the funding components with longer There is a "Business continuity plan", anchored to the maturities. In this domain, a programme of medium and contingency programme for the most crucial central
118 Banco BPI | Annual Report 2002 information systems. In the case of necessity caused by LEGAL RISKS equipment breakdown or by a major incident, it is possible Legal risks are related to the unexpected losses associated to recover these systems on site or at an alternative location with shortcomings in the legal situation applicable to after a period of time that varies according to the type of contracts / positions to be established or any changes to this risk. Also guaranteed, even under extreme conditions, is legal context. minimum functioning under an exceptional situation. The same method applies in the case of the main Particular attention is paid in the sphere of legal risks to telecommunications equipment. The voice and data service reviewing the legal situation and the identification of any at the BPI Group’s main buildings is guaranteed through the regulatory discrepancy; to analysing the prospects of altering recourse to alternative equipment, in accordance with formal the legal framework and respective consequences; to disaster-recovery processes. The BPI Group has also clarifying the nature of contractual relations and their identified alternative procedures for each one of its most interpretation by counterparties; product analysis, their legal critical operations in the event of a failure in the systems status, centralisation of communications with supervisory supporting its day-to-day operations. A database is on stand- entities and the drawing up of the respective processes with -by which identifies all these procedures, thereby enabling these entities; and to the identification / proposal of the these to be activated at any point in time. These disaster measures capable of minimising risks of litigation. recovery schemes are tested and subjected to periodic reviews.
Finally, the BPI Group reviews annually its insurance policy cover, adjusting its operating requirements and market conditions with the object of obtaining an appropriate level of outside protection against risks.
Report | Risk management 119 Rating
The BPI Group’s strategy, competitive position, solid Universo – and their correct integration. They also underline financial base and capacity to generate earnings continued the high quality of the Group’s assets and earnings. to merit high credit ratings from independent and reputable entities – Fitch Ratings, Moody’s and Standard & Poor’s. Following the BPI Group’s restructuring in 2002, the rating agencies Moody’s, Standard & Poor’s and Fitch Ratings The rating agencies highlight in broad terms the successful confirmed BPI’s rating classifications and maintained their growth strategy implemented by BPI, materialising in the outlook as "stable", highlighting the benefits to be reaped acquisition of four banks – Banco Fonsecas & Burnay, Banco from the much simpler structure, as well as the potential for Borges & Irmão, Banco de Fomento e Exterior and Banco cost savings engendered by the reorganisation.
Rating classifications Latest research Long term Short term Outlook Date Action Banco BPI Moody's 7 Jan. 03 Hold A2 P-1 Stable Fitch Ratings 13 Jan. 03 Hold A+ F1 Stable Standard & Poor's 20 Dec. 02 Hold A- A-2 Stable BPI Investimentos Fitch Ratings 13 Jan. 03 Hold A+ F1 Stable Standard & Poor's 20 Dec. 02 Hold A- A-2 Stable
Moody’s: Bonds which are rated "A" possess very favourable attributes and are considered as superior-medium grade investments. Table 58 (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).
120 Banco BPI | Annual Report 2002 RATING REPORTS Moody’s, 7 January 2003 "The A2/P-1/C+ ratings of Banco BPI ("BPI") reflect its position “Banco BPI and its subsidiaries represent the fifth largest as the fourth largest private banking group in Portugal with a banking group in Portugal with consolidated equity of Eur 1.4 market share of some 10%, its improving financial condition billion and total assets of Eur 24.9 billion at end September and its successful transformation into a universal banking 2002. As the above (“above” refers to the reorganisation of the group by developing its previously limited retail operations. The group’s structure in 2002) are purely internal, involving ratings also take into account its strategy of remaining a mainly subsidiaries directly or indirectly owned by the BPI Group, domestic-oriented group, which may limit its growth there has been no material impact on the consolidated figures opportunities, and the challenges that it will face in a more on the group.” consolidated and increasingly competitive environment as well as the implications of the rapid growth in credit throughout the Standard & Poor’s, 20 December 2002 Portuguese market in the context of a slowing economy. “Although the economic environment will remain challenging and will likely continue to pressure the BPI banking group's The stable outlook reflects both the improving credit profile of financials, the degree of deterioration of both asset quality and the group and the challenges it faces in a consolidated and profitability is expected to remain within reasonable levels. The increasingly competitive industry in the context of a slowing group is expected to maintain its policy of streamlining economy." expenses. Actual results from continuous staff reductions are expected to bear fruit, helping, to some extent, to offset Fitch Ratings, June 2002 and 13 January 2003 declines in other items of BPI's consolidated income “BPI’s ratings reflect management track record in delivering statement.” good results, the group sound asset quality, generally conservative risk profile and strong franchise in certain business areas.”
Report | Rating 121 BPI shares
Return on investment Liquidity Banco BPI1 shares closed 2002 with a gain2 of 1.5%, a In 2002, BPI shares generated a trading volume of EUR 602 performance that is extremely positive when one considers that million, corresponding to an increase of 54% compared to in the same period European banks shed 26.8%3. In general 2001. Daily average share dealings amounted to EUR 2.4 terms, the equities market fell 25.6% in Portugal4 and 32.5% million. in Europe5. The return on investment (ROI) in BPI shares – which takes into consideration the share’s stock market Stock market capitalisation appreciation and assumes the reinvestment of dividends in On the basis of its stock market capitalisation, using the new BPI shares – was situated at 3.0%. closing price at the last stock exchange session of 2002, the BPI Group’s market value was EUR 1 657 million, 14% higher Banco BPI shares and key indices performance1 than in 2001. BPI was, at the end of 2002, the ninth largest ∆% € 30 2.79 company listed on the Euronext Lisbon, accounting for 3.7% of Banco BPI 20 2.58 the market’s global capitalisation. 2 10 DJ Europe STOXX Banks 2.36
0 2.15 Market multiples PSI-20 6 -10 1.93 The price earnings ratio fluctuated during the course of
-20 1.72 2002 between a minimum of 9.0 and a maximum of 13.7, Banco BPI shares’ price 7 -30 1.50 to be fixed at 11.3 at the end of 2002. The price cash flow
-40 1.29 indicator in 2002 bottomed at 4.9 and peaked at 7.4. The Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. price-book value8 figure was situated at 1.4 at the end of the 1) BPI shares’ trend in relation to 31 December 2001. Chart 55 year. 2) Adjusted for the capital increase realised in May 2002.
Earnings per share Share capital Earnings per BPI Group share in 2002 stood at EUR 0.192 In May 2002, BPI SGPS (subsequently renamed Banco BPI) (EUR 0.196 in 2001). Net book value per share at the end of increased its share capital from EUR 645 625 000 to EUR December 2002 was EUR 1.54. 760 000 000 through the issue of 114 375 000 nominative and dematerialised (book-entry) ordinary shares, with a nominal Dividends value of one euro each and entitled to the full dividend relating The dividend proposed to the Shareholders’ General Meeting is to 2002 and following years. The operation was realised by EUR 0.08, attributable to each one of the 760 000 000 means of a public subscription reserved for shareholders at a shares in issue at 31 December 2002. The total amount to be price of EUR 1.75 per share. The shares representing Banco distributed is EUR 60.8 million. BPI’s share capital are all quoted on the Euronext market.
1) On 20 December 2002, BPI SGPS absorbed by way of merger Banco BPI and changed its name to Banco BPI, maintaining the status of the company at the head of the group and the only BPI Group company with shares listed on the Euronext Lisbon market. 2) Adjusted by the capital increase realised in May 3) Taking as the reference the Dow Jones Europe STOXX Bank index. 4) Taking into consideration the trend in the PSI-20 index. 5) Based on the evolution of the Dow Jones STOXX 600 index. 6) Price as a multiple of net profit per share. 7) Price as a multiple of cash flow after taxation per share. 8) Price as a multiple of book value per share.
122 Banco BPI | Annual Report 2002 Principal BPI shares indicators Amounts expressed in euro and millions of euro 1998 1999 2000 2001 2002
Stock exchange price of BPI shares1 (euros) Highest price 6.03 4.56 4.10 3.83 2.63 Average price 4.21 3.69 3.50 2.65 2.34 Lowest price 2.60 3.03 3.09 1.81 1.74 Closing price 3.86 3.86 3.18 2.15 2.18 Changes in price and key indices Variation in Banco BPI shares price 29.5% (0.1%) (17.6%) (32.3%) 1.5% Variation in PSI-20 index 24.9% 8.7% (13.0%) (24.7%) (25.6%) Variation in Dow Jones STOXX 600 index 18.4% 35.9% (5.2%) (17.0%) (32.5%) Variation in Dow Jones Europe STOXX Bank index 10.3% 18.5% 9.3% (9.5%) (26.8%) Shareholder's overall return (ROI) Shareholder's overall return 31.2% 2.5% (16.0%) (30.4%) 3.0% BPI Group's market value No. of shares at the end of the year (in millions) 77.9 565.02 645.6 645.6 760.0 Stock market capitalisation at the end of the year (M.euro) 2 252.7 2 390.0 2 156.4 1 459.1 1 656.8 Data per share (euro) Cash flow after taxation 0.351 0.319 0.445 0.397 0.355 Net profit 0.235 0.207 0.243 0.196 0.192 Dividend 0.073 0.094 0.093 0.086 0.0833 Book value 0.970 1.050 1.370 1.338 1.538 Weighted average no. of shares (in millions) 584.0 603.8 626.3 679.0 728.3 Market valuation Price as a multiple of: After cash flow after taxation 11.0 12.1 7.1 5.4 6.1 Net profit 16.4 18.7 13.1 10.9 11.3 Book value 4.0 3.7 2.3 1.6 1.4 Dividend yield 2.5% 2.4% 2.4% 2.7% 3.9% Earnings yield 7.9% 5.4% 6.3% 6.2% 9.0% Liquidity Annual trading volume (M.euro) 2 100.0 1 495.0 992.9 390.8 602.0 Share capital rotation 85.4% 70.2% 45.2% 21.7% 87.2% Daily average trading volume (M.euro) 8.5 6.0 4.1 1.6 2.4 Dividends Net profit (M.euro) 137.0 124.8 152.4 133.3 140.1 Distributed earnings (M.euro) 42.8 56.5 58.1 58.1 60.8 Pay-out ratio 31.2% 45.3% 38.1% 43.6% 43.4% Dividend per share (euro) 0.073 0.094 0.093 0.086 0.083 Dividend yield 2.5% 2.4% 2.4% 2.7% 3.9% 1) Source: Bloomberg Table 59 2) In 1999, the capital was increased from 77.9 million shares to 113 million shares which generated a cash inflow of EUR 125.4 million. Subsequently, a stock split of BPI SGPS shares was carried out through the substitution of each existing share (with a nominal value of 5 euros each) by 5 new shares with a nominal value of 1 euro each. 3) The dividend per share in respect to 2002 exercise is equivalent to the adjusted dividend of 2001. The difference between both figures is due to the fact that, for purposes of the dividend payment, all the shares in issue at the end of 2002 (760 million) were taken into account, as opposed to the weighted average number of shares (728.3 million), as well as the fact that it was decided to round off the dividend per share to the euro cent.
Report | BPI shares 123 Treasury stock In 2002, Banco BPI (previously named BPI SGPS) acquired At 31 December 2002, Banco BPI held 1 428 663 own on the stock exchange 3 667 489 shares at an average price shares, or 0.2% of capital, reserved exclusively for covering of EUR 2.57 (for a total cost of EUR 9 438 613), and sold, the stock incentive and options part of the variable also on the stock exchange, 1 626 389 shares at an average remuneration programme. Of this figure, 1 057 669 shares price of EUR 2.05 (for a total amount of EUR 3 337 529). are destined to provide cover for the stock options plan and Additionally, in the over-the-counter market, it acquired 370 994 shares to provide cover for the shares awarded 2 852 shares at an average price of EUR 2.39 euros (at a under the condition precedent scheme. For its part, Banco total cost of EUR 6 826) and sold 615 289 shares at an Português de Investimento, held at 31 December 2002, average price of EUR 2.67 (for a total amount of EUR 341 784 Banco BPI shares or 0.04% of capital, all of which 1 643 961). These transactions corresponded to 0.9% of earmarked for hedging positions in PSI-20 futures. Banco BPI’s share capital and were destined exclusively for the execution of the 2001 variable remuneration programme The other subsidiaries over which Banco BPI has effective for Employees and directors through the granting of shares management control did not acquire or sell any share and share options (Portuguese initials RVA). representing its share capital and, at the end of December 2002, did not hold any Banco BPI shares in their portfolios. For its part, Banco Português de Investimento, S.A., – 100% owned by Banco BPI – acquired on the stock exchange 4 114 577 shares at an average price of EUR 2.48 (for a total cost of EUR 10 203 532), and sold, also on the stock exchange, 4 577 736 shares at an average price of 2.51 (for a total amount of EUR 11 476 306). In the over-the-counter market, it acquired 49 510 shares at an average price of EUR 2.19 (for a total cost of EUR 108 427). These transactions corresponded to 1.3% of Banco BPI’s share capital, with 37% of the quantity traded being earmarked to hedge positions in PSI-20 futures.
124 Banco BPI | Annual Report 2002 Shareholders
STRUCTURE AND PRINCIPAL SHAREHOLDERS
On 31 December 2002 Banco BPI’s capital was held by holding 13.3% of the equity, while 86.7% was in the hands 24 364 shareholders, of whom 23 792 were individuals of 572 institutional investors and companies.
Distribution of Banco BPI share capital1 At 31 December 2002 Nationals Foreign2 Total
Type of shareholders No. of % of No. of % of No. of % of shareholders capital held shareholders capital held shareholders capital held Individuals 23 571 13.2 221 0.1 23 792 13.3 Pension funds 57 7.6 - - 57 7.6 Unit trust funds 27 1.6 - - 27 1.6 Other institutionals3 284 31.5 204 45.9 488 77.4 Total 23 939 54.0 425 46.0 24 364 100.0
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 60 the registration of EUR 759 943 580, 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 share capital At 31 December 2002 % voting rights No. of shares held % of capital held Shareholder (according to Securities Code)
Itaú Group1,2 114 619 877 15.08% 15.12% La Caixa Group1,3 113 956 379 14.99% 15.03% Allianz Group4 67 381 096 8.87% 8.89% Totta Group5 63 110 094 8.30% 8.32% Sonae Group6 32 772 558 4.31% 4.32% Clearstream Banking S.A., Luxembourg7 30 823 510 4.06% 4.07% BCP Group 29 305 391 3.86% 3.87% Caixa Geral de Depósitos Group 23 695 426 3.12% 3.13% Arsopi Group 22 547 249 2.97% 2.97% Violas Group 21 681 062 2.85% 2.86% 1) In terms of the company’s statutes, the exercise of voting rights is limited to 12.5%. Table 61 2) Through IPI – Itaúsa Portugal SGPS, S.A., 100% controlled. 3) Through Caixa Holding, S.A., Sociedad Unipersonal 100% controlled. 4) Through RAS International, N.V., 100% controlled, Companhia de Seguros Allianz Portugal (0.22%) and Fundo de Pensões Allianz Portugal (0.004%) 5) Shares held directly by Banco Totta & Açores S.A. and by companies which Banco BPI is aware of that fall within one of the situations contemplated in article 20 of the Securities Code. Does not include 27 689 939 shares held directly by Banco Totta & Açores, S.A. through its London branch, acquired within the scope of a repurchase operation entered into with Sonae Investments BV, as described in note 6 of this table. 6) 5 082 619 shares (0.67%) through Sonae Investments BV and 27 689 939 shares (3.64%) the object of a repurchase contract entered into between Sonae Investments BV and Banco Totta & Açores, S.A. In terms of the aforesaid repurchase contract, and according to an announcement by Sonae and Banco Totta, the sale of 27 689 939 shares is purely transitional, whereby the shares are to be repurchased at any moment at Sonae Investments BV’s initiative prior to the date the contract expires. Banco Totta e Açores S.A. and Sonae Investments BV agreed that the latter retains the right to exercise the voting rights attaching to the abovementioned shares under the terms of an irrevocable mandate. 7) Custodian bank.
Report | Shareholders 125 Shareholders value creation
Return on Investment (ROI) The appreciation in the price of BPI shares has been The accompanying table shows, by line, the various average consistent: the shareholder who subscribed for shares in the annual returns earned by a shareholder who, having invested share capital increase realised by way of initial public the same in BPI shares at the beginning of the year, offering in October 1986, achieved an average annual return disinvested at the end of the same year or at the end of each on his investment of 10.5% until 2002. The return obtained one of the following years. by the IPO shareholders has been on average 1 p.p. higher than that shareholders would have earned had they opted to invest in other Portuguese stocks, as measured by the PSI index.
Creation of value for BPI Shareholders1 (1981-2002) Return on percentage (annual average rates) Exit3 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 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 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 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 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 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 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 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 1992 9.6 30.8 4.3 1.5 6.6 27.1 27.8 23.6 17.2 9.1 8.2 1993 56.2 1.8 (0.9) 6.0 30.3 30.5 25.4 18.0 9.1 8.2 1994 (30.9) (19.1) (4.8) 25.5 26.8 21.8 14.6 5.9 5.5 1995 (5.6) 9.6 49.0 43.9 33.4 22.1 10.4 9.1 1996 22.6 76.9 59.4 41.7 26.2 12.1 10.3 1997 139.9 77.5 47.2 26.8 10.5 8.9 1998 31.2 15.7 3.5 (7.2) (4.9) 1999 2.5 (7.4) (16.3) (11.3) 2000 (16.0) (23.8) (15.1) 2001 (30.4) (14.7) 2002 3.0
1) The calculations were based on the assumption that during the investment period the shareholder in question reinvested his dividend on the Table 62 day immediately after receipt thereof to acquire new BPI shares. It was also assumed that the same shareholder participated in all capital increases and convertible debt issues reserved for shareholders, subscribing for the maximum quantity to which he was entitled to. 2) Entry (at the beginning of the year). 3) Exit (at the end of the year). 4) Entry in October 1986 at the initial public offering.
126 Banco BPI | Annual Report 2002 Final acknowledgements
Despite the particularly difficult background which characterised 2002, the BPI Group was able to post highly satisfactory business indicators and to execute an ambitious rationalisation plan for its organisation and functioning. Without the dedicated commitment of its Employees, the support and understanding of its Customers, the cooperation of the Monetary and Financial Authorities and the attentive interest of its Shareholders, it would not have been possible to realise these goals.
The Management Board would for this reason like to express its sincere gratitude.
A special word of appreciation is due to Drs. Jorge Holtreman Roquette and António Seruca Salgado who during the year and of their own accord ceased to form part of the Management Board. Both gentlemen will remain etched in BPI’s history as memorable references. They merit full recognition for their decisive contribution to the Group’s development and for the affirmation of their professional and entrepreneurial acumen. Both formed part of the founding nucleus that gave rise to BPI – Dr. Jorge Roquette since 1981, when Sociedade Portuguesa de Investimentos was born, and Dr. António Seruca Salgado from 1984, a year before the company’s transformation into an investment bank. Their professional careers concentrated above all on the corporate banking business, first at the investment bank and later, at the commercial banking arm, in tandem with the Group’s expansion and consolidation. But their invaluable contributions, always manifested at the highest levels of responsibility, will forever be associated with all the major strides in BPI’s history, bearing the hallmark of professionalism, competence and loyalty.
Also in the year under review, Eng.s Sérgio Sawaya and Luís Mira Amaral ceased to form part of Banco BPI’s and Banco Português de Investimento’s Management Boards, respectively. The Board also expresses its appreciation for the dedication, commitment and competence in which they performed their respective functions.
Oporto, 27 February 2003.
Management Board
Report | Shareholders value creation and Final acknowledgements 127 Proposed appropriation of net profit
Banco BPI, S.A. made a consolidated net profit in 2002 of EUR 140 069 454 and an individual net profit of EUR 39 535 403.59.
The Management Board proposes that, in relation to the 2002 financial year, a dividend of EUR 0.08 (8 euro cents) be distributed for each one of the 760 000 000 shares representing the share capital at 31 December 2002.
The proposed dividend per share is, in terms adjusted for the share capital which took place in May 2002 and formalised by the public deed on 3 June 2002, equivalent to the dividend distributed in the preceding year and implies a distribution of earnings corresponding to 43% of consolidated net income 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. Consequently, the distribution of the proposed dividend implies the distribution of free reserves in the amount of EUR 25 218 136.77 in order to complement the partial application of individual net profit.
In the consolidated accounts and after taking into account the proposed dividend, the portion of consolidated net profit retained in the amount of EUR 79 269 454 results in an increase in reserves to EUR 348 075 600.
Accordingly, in the exercise of the powers conferred on it by article 16(2)(b) of the Statutes, the Management Board proposes the following appropriation of individual net income for the financial year:
Appropriation of individual net profit EUR 39 535 403.59 Of which: To legal reserve EUR 3 953 540.36 For dividends EUR 35 581 863.23
Distribution of free reserves EUR 25 218 136.771
Dividends to distribute EUR 60 800 000.00
Oporto, 27 February 2003
Management Board
1) After deducting the amount relating to the dividend notionally attributable to the treasury stock held by the Bank.
128 Banco BPI | Annual Report 2002 Consolidated financial statements CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER, 2002 AND 2001
2002 2001
ASSETS Notes Depreciation Gross Net Net and provisions Cash and deposits at Central Banks 4.1 524 106 524 106 506 726
Loans and advances to credit institutions repayable on demand 4.2 330 065 330 065 353 688
Other loans and advances to credit institutions 4.3 3 267 999 99 818 3 168 181 3 512 320
Loans and advances to Customers 4.4 16 615 194 142 602 16 472 592 15 372 139
Bonds and other fixed income securities
Issued by government entities 4.5 2 145 049 2 2 145 047 1 518 313
Issued by other entities 4.5 717 709 5 932 711 777 1 186 574
Shares and other variable-yield securities 4.6 224 706 75 006 149 700 155 438
Investments in associated companies 4.7 108 143 1 182 106 961 105 375
Investments in subsidiary companies excluded from the consolidation 4.8 48 999 48 999 49 820
Other investments 4.9 509 036 23 872 485 164 671 949
Intangible assets 4.10 104 119 88 630 15 489 20 855
Tangible fixed assets 4.11 621 367 330 290 291 077 304 268
Of which: [Premises] [298 030] [114 715] [183 315] [191 902]
Treasury stock 3 044 3 044 1 707
Other assets 4.12 265 621 13 939 251 682 264 924
Accruals, deferrals and others 4.13 965 190 965 190 768 849
Total assets 26 450 347 781 273 25 669 074 24 792 945
OFF BALANCE SHEET ITEMS Guarantees provided and other contingent liabilities 4.28 3 122 781 3 297 860
Of which:
[Guarantees and sureties] [3 045 337] [3 224 501]
[Others] [77 444] [73 359]
Commitments 4.28 3 146 468 3 335 548
The Accountant
130 Banco BPI | Annual Report 2002 (Amounts expressed in thousands of euro)
LIABILITIES AND SHAREHOLDERS’ EQUITY Notes 2002 2001
Amounts owed to credit institutions
Repayable on demand 4.14 45 748 43 577
Term or notice deposits 4.14 6 581 508 6 649 267
Amount owed to Customers
Savings deposits 4.15 868 361 833 304
Other debts
Repayable on demand 4.15 4 922 142 4 706 046
Term or notice 4.15 6 540 427 6 513 766
Debt securities
Outstanding bonds 4.16 3 541 429 3 121 750
Other liabilities 4.17 198 097 206 690
Accruals, deferrals and others 4.18 703 666 622 170
Provisions for sundry risks
Provisions for retirement benefits 4.19 14 541 9 442
Other provisions 4.19 200 439 235 576
Fund for general banking risks 4.19 5 059 6 658
Subordinated debt 4.21 625 676 631 097
Minority interests 4.22 253 106 304 915
Subscribed share capital 4.23 760 000 645 625
Share premium account 4.24 286 833 201 052
Reserves 4.25 (18 027) (71 273)
Consolidated net profit for the year 4.36 140 069 133 283
Total liabilities and shareholders' equity 25 669 074 24 792 945 The accompanying notes form an integral part of these balance sheets.
The Board of Directors
Consolidated financial statements 131 CONSOLIDATED STATEMENTS OF INCOME BY NATURE FOR THE YEARS ENDED 31 DECEMBER, 2002 AND 2001
EXPENSES Notes 2002 2001
Interest and similar expenses 4.29 1 127 657 1 204 612
Commissions 4.30 21 975 17 231
Losses on financial operations 4.31 994 458 1 018 043
General and administrative expenses
Personnel costs 4.32 285 661 288 277
Other administrative expenses 154 990 165 025
Depreciation 4.10 / 4.11 50 198 51 834
Other operating expenses 4.33 7 886 8 105
Provisions for overdue loans and other risks 4.27 126 494 109 713
Provisions for investments 4.27 4 232 5 395
Extraordinary expenses 4.34 48 562 79 460
Income tax 4.35 44 743 59 630
Other taxes 1 620 3 393
Minority interests in the consolidated net profit for the year 4.22 9 802 17 257
Consolidated net profit for the year 4.36 140 069 133 283
3 018 347 3 161 258
The Accountant
132 Banco BPI | Annual Report 2002 (Amounts expressed in thousands of euro)
INCOME Notes 2002 2001
Interest and similar income 4.29 1 604 857 1 684 268
Income from securities 4.29 10 393 15 908
Commissions 4.30 207 064 210 102
Gains on financial operations 4.31 1 014 006 1 058 674
Reversal of provisions 4.27 62 617 30 582
Earnings of associated companies and subsidiaries excluded from the consolidation 7 885 14 491
Other operating income 4.33 68 287 62 737
Extraordinary income 4.34 43 238 84 496
3 018 347 3 161 258
The accompanying notes form an integral part of these statements.
The Board of Directors
Consolidated financial statements 133 CONSOLIDATED STATEMENTS OF INCOME BY FUNCTIONS FOR THE YEARS ENDED 31 DECEMBER, 2002 AND 2001
(Amounts expressed in thousands of euro)
2002 2001
Financial margin 477 200 479 656
Provisions for credit risk (35 857) (37 630)
Credit recoveries 14 678 18 855
Net financial margin 456 021 460 881
Net commissions 185 089 192 871
Other net operating results 48 507 37 947
Services margin 233 596 230 818
Income from securities 10 393 15 908
Earnings of companies recorded by the equity method 7 885 14 491
Net gains on financial operations 19 548 40 631
Provisions for unrealised losses on securities (17 225) (5 374)
Investment margin 20 601 65 656
Other costs (4 404) (5 563)
Income before transformation costs 705 814 751 792
Personnel costs (285 661) (288 277)
Other administrative expenses (154 990) (165 025)
Depreciation (50 198) (51 834)
Transformation costs (490 849) (505 136)
Operational result 214 965 246 656
Other provisions (15 027) (41 521)
Net gains on the sale of investments 20 256 6 166
Other extraordinary results (25 580) (1 131)
Profit before taxes and minority interests 194 614 210 170
Taxes (44 743) (59 630)
Minority interests (9 802) (17 257)
Consolidated net profit for the year 140 069 133 283
The accompanying notes form an integral part of these statements.
The Accountant The Board of Directors
134 Banco BPI | Annual Report 2002 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED 31 DECEMBER, 2002 AND 2001
(Amounts expressed in thousands of euro)
2002 2001
Operating activities Interest, commissions and similar income received 2 175 430 2 635 433
Interest, commissions and similar expenses paid (1 393 113) (1 763 993)
Payments to personnel and suppliers (7 268) (410 050)
Recovery of loans and interest in arrears 14 678 18 855
Net extraordinary operating expenses (461 197) 1 217
Net cash flow from income and expenses 328 530 481 462
Decreases (increases) in:
Other loans and advances to credit institutions 345 114 (821 721)
Loans and advances to Customers (1 155 626) (1 998 396)
Bonds and other fixed income securities (101 014) (255 021)
Shares and other variable-yield securities (9 728) 21 533
Other assets, accruals, deferrals and others 23 285 63 474
Net cash flow from operating assets (897 969) (2 990 131)
Increases (decreases) in:
Amounts owed to credit institutions – term or notice deposits (67 759) 740 248
Amounts owed to Customers 277 814 937 268
Other liabilities, accruals, deferrals and others (33 678) (22 772)
Net cash flow from operating liabilities 176 377 1 654 744
Contributions to the pension funds (140 574) (140 416)
Income tax paid (78 462) (35 736)
(612 098) (1 030 077)
Investing activities Purchase / incorporation of equity investments:
Aquapor – Serviços, S.A. (1 740) (9 831)
Douro – Sociedade Gestora de Participações Sociais, S.A. (3 592)
Viacer – Sociedade Gestora de Participações Sociais, S.A. (25 481)
Solo – Investimentos em Comunicação, S.G.P.S., S.A. (7 223)
Other (200)
Sale of equity investments:
Luságua – Gestão de Águas, S.A. 5 986
Purchase of other investments (31 964) (12 538)
Sale of other investments 239 312 13 311
Purchase of tangible fixed assets and intangible assets (44 151) (42 540)
Sale of tangible fixed assets:
Premises for own activities 1 913 3 613
Other 689 1 810
Dividends received and other income 10 258 13 156
167 094 (56 306)
The accompanying notes form an integral part of these statements.
Consolidated financial statements 135 (Amounts expressed in thousands of euro)
2002 2001
Financing activities Issuance of debt securities and subordinated debt 927 650 1 718 696
Redemption of debt securities (569 358) (357 915)
Purchase and sale of own debt securities and subordinated debt 75 775 (135 725)
Capital increase
Nominal value 114 375
Share premium account 85 781
Interest on debt securities and subordinated debt (129 630) (111 537)
Dividends paid on preference shares (9 568) (17 923)
Distribution of prior year profit (57 875) (58 097)
437 150 1 037 499
Net increase (decrease) in cash and equivalents (7 854) (48 884)
Cash and equivalents at the beginning of the year 816 837 865 721
Changes in BPI Group companies (560)
Cash and equivalents at the end of the year 808 423 816 837
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 Matos de Carvalho Members Alfredo 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 de Oliveira Violas Manuel Ferreira da Silva Maria Celeste Hagatong Diethart Breipohl Roberto Egydio Setúbal Tomaz Jervell
136 Banco BPI | Annual Report 2002 Notes to the consolidated financial statements Notes to the consolidated financial statements as of 31 December, 2002 and 2001 (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 Banco BPI has direct and indirect investments in subsidiary and the transformation of BPI SGPS, S.A. (BPI SGPS), through associated companies. Subsidiary companies are those in which change of its corporate name and purpose – that became the participating interest exceeds 50% of the subsidiary’s share banking activities – and incorporation of the net assets and capital. Associated companies are those in which the operations of Banco BPI, S.A., which was subsequently participating interest is between 20% and 50% of their share extinguished. capital, or where Banco BPI has direct or indirect significant influence over their management and financial policy (note 4.7). The transformation became effective on 20 December, 2002, the date on which the operations involving the corporate During 2001, the BPI Group increased its participation in Douro reorganisation of the BPI Group were registered in the – Sociedade Gestora de Participações Sociais, S.A. to 100%, commercial registry. The reorganisation also included: through a public tender offer on the shares of that company, by direct acquisition and compulsory acquisition, in accordance – the merger of BPI Ventures, SGPS, S.A., as of 1 January, with article 194 of the Portuguese Securities Market Code 2002, and Dixit Investimentos Estratégicos, SGPS, S.A. into ("Código de Valores Mobiliários"). BPI SGPS; During 2001, the BPI Group subscribed for part of a capital – the spin-off of part of the net assets of Banco Português de increase of Viacer – Sociedade Gestora de Participações Sociais, Investimento, S.A (BPI Investimentos) and their incorporation Lda., increasing it participation in that company to 26%. into BPI SGPS; and, During 2001, BPI – Capital SGPS, S.A., BPI Participações – – the merger of BPI Leasing – Sociedade Portuguesa de Locação SGPS, S.A. and BPI Private Equity, SGPS, S.A. were merged Financeira, S.A., BPI Factor – Sociedade Portuguesa de into Banco BPI. For accounting purposes, the merger was Factoring, S.A. and Estratégia SGPS, S.A. into Banco BPI. considered to take place on 1 July, 2001.
The BPI Group started operating in 1981 with the founding of During 2001, the BPI Group sold its 30% participation in SPI – Sociedade Portuguesa de Investimentos, S.A.R.L. By public Luságua – Gestão de Águas, S.A. deed dated December 1984, that company changed its corporate name to BPI – Banco Português de Investimento, S.A., which was During 2001, Banco BPI founded BPI – Madeira, SGPS, the first private investment bank created after the re-opening, in Unipessoal. The share capital of that company is th. euro 1984, of the Portuguese banking sector to private investment. 150 000 and is fully owned by the BPI Group. BPI – SGPS, S.A. ("BPI SGPS") was a holding company that resulted from the transformation of BPI – Banco Português de During 2001, Banco BPI’s investment in Digimarket – Sistemas Investimento, S.A. on 30 November, 1995, its exclusive purpose de Informação, S.A. was considered as being part of the BPI being to act as the BPI Group’s holding company. Group. In the second half of 2002, Banco BPI reduced its participating interest in that company to 9.9% and so the Banco BPI is the central entity of a financial group dedicated to company stopped being considered as part of the BPI Group. the banking business, which offers a diversified range of financial services and products to companies, institutional During 2002, the BPI Group founded BPI (Suisse), S.A. The investors and individuals. Banco BPI has been listed on the share capital of that company amounts to 1 500 000 Swiss stock exchange since 1986. francs, and the BPI Group’s participation therein is 99.87%.
At 31 December, 2002 the banking business of the Group was carried out by two banks: Banco Português de Investimento, S.A. (BPI Investimentos), in investment banking; and Banco BPI, S.A. (Banco BPI), in retail banking. BPI Investimentos is fully owned by Banco BPI.
138 Banco BPI | Annual Report 2002 During the first half of 2002, Banco BPI subscribed for, and paid up, the full amount of the capital increase of BPI – Ventures, SGPS, S.A. from th. euro 25 000 to th. euro 65 000, by conversion of supplementary capital contributions.
During the second half of 2002, BFE Investimentos – Sociedade de Investimentos, S.A. changed its activity to become a holding company and corporate name to Estratégia, SGPS, S.A.
During the second half of 2002, BPI Dealer – Sociedade Financeira de Corretagem, S.A. was merged into BPI Investimentos. For accounting purposes, the merger was considered to take place on 1 January, 2002.
Banco de Fomento S.A.R.L. was incorporated during the second half of 2002, with head office in Angola and share capital of 1 305 561 thousand kwanzas, being fully owned by the BPI Group. The company resulted from the transformation of Banco BPI’s Luanda Branch into a bank, under Angolan legislation.
During the second half of 2002, the process of incorporation of BPI Cayman, Ltd. 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 owned by the BPI Group.
During the second half of 2002, the sale option, issued by the BPI Group, over 55% of the share capital of Solo – Investimentos em Comunicações, SGPS, S.A. was exercised and therefore that company became fully owned by Banco BPI.
Consolidated financial statements | Notes 139 At 31 December, 2002, 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.1 Portugal 1 160 499 26 813 261 39 535 Banco Português de Investimento, S.A. Portugal 31 771 3 058 786 11 174 100.0% 100.0% Full consolid. Banco de Fomento, S.A.R.L. Mozambique 13 264 102 819 4 347 98.0% 100.0% Full consolid. Banco de Fomento, S.A.R.L.2 Angola 40 728 557 391 11 205 100.0% 100.0% Full consolid. Banc Post S.A. Romania 102 492 623 420 4 990 17.0% 17.0% Equity method BPI Cayman, Ltd. Cayman Islands 150 000 150 102 100.0% Integr. global Specialised loan companies BPI Rent – Comércio e Aluguer de Bens, Lda. Portugal (4 222) 376 427 (8 119) 100.0% 100.0% Equity method Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. Portugal 464 479 66 100.0% 100.0% Equity method BPI Locação de Equipamentos, Lda. Portugal (5 263) 42 327 (2 987) 100.0% 100.0% Equity method Asset management companies and dealers BPI Dealer – Sociedade Financeira de Corretagem (Moçambique), S.A.R.L. Mozambique 66 217 12.5% 100.0% Full consolid. BPI Fundos – Gestão de Fundos de Investimento Mobiliários, S.A. Portugal 18 005 22 500 12 643 100.0% 100.0% Full consolid. BPI – Global Investment Fund Management Company, S.A. Luxembourg 976 1 003 812 100.0% 100.0% Full consolid. BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. Portugal 4 758 5 875 1 983 100.0% 100.0% Equity method Sofinac – Sociedade Gestora de Fundos de Investimento Imobiliário, S.A. Portugal 1 093 1 270 193 100.0% 100.0% Full consolid. BPI (Suisse), S.A. Switzerland 670 724 (363) 99.87% Full consolid. Venture capital companies F. Turismo – Capital de Risco, S.A. Portugal 5 361 5 443 217 25.0% 25.0% Equity method Inter-Risco – Sociedade de Capital de Risco, S.A. Portugal 21 413 27 078 (1 838) 83.7% 83.7% Full consolid. Solo – Investimentos em Comunicação, SGPS, S.A. Portugal 17 114 443 (23) 100.0% 100.0% Full consolid. Insurance companies BPI Vida – Companhia de Seguros de Vida, S.A. Portugal 34 196 1 224 464 2 407 100.0% 100.0% Equity method Cosec – Companhia de Seguros de Crédito, S.A. Portugal 23 165 109 397 1 446 50.0% 50.0% Equity method Companhia de Seguros Allianz Portugal, S.A. Portugal 107 811 829 995 (3 801) 35.0% 35.0% Equity method Others BPI Capital Finance Ltd.3 Cayman Islands 293 295 248 295 9 894 100.0% 100.0% Full consolid. BPI, Inc.4 U.S.A. 117 274 8 100.0% 100.0% Equity method BPI Madeira, SGPS, Unipessoal, S.A. Portugal 149 998 150 024 (2) 100.0% 100.0% Full consolid. CrediUniverso – Serviços de Marketing, S.A. Portugal 2 062 7 858 402 50.0% 50.0% Full consolid. Douro – Sociedade Gestora de Participações Sociais, S.A. Portugal 3 797 3 852 (54) 100.0% 100.0% Equity method Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. Portugal 36 209 182 571 1 489 32.8% 32.8% Equity method Promática – Sociedade de Informação e de Organização de Empresas, S.A. Portugal 1 113 1 436 229 100.0% 100.0% Equity method Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda. Portugal (5 077) 1 370 (20) 100.0% 100.0% Equity method Viacer – Sociedade Gestora de Participações Sociais, Lda. Portugal 57 830 61 964 12 720 26.0% 26.0% Equity method Note: Unless otherwise indicated, all amounts are as of 31 December, 2002 (accounting balances before consolidation adjustments). 1) Net profit for the year includes net profit of the new Banco BPI as from 20 December, 2002 and net profit of BPI SGPS and BPI Ventures until that date. Net profit of Banco BPI for the period from 1 January, 2002 to 20 December, 2002 was th. euro 69 920. 2) Banco BPI holds 1 305 473 shares. The share capital of this company is 1 305 561 shares, fully owned by the BPI Group. 3) 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 valueof 25 US dollars each. The BPI Group's effective participation corresponds to 0.002% considering the preference shares. 4) These amounts refer to balances at 30 September, 2002, translated from US dollars at the exchange rate as of 31 December, 2002.
140 Banco BPI | Annual Report 2002 2. INFORMATION COMPARABILITY, BASIS OF PRESENTATION, CONSOLIDATION PRINCIPLES AND PRINCIPAL ACCOUNTING POLICIES
INFORMATION COMPARABILITY The investments in subsidiary companies which meet the The consolidated financial statements as of 31 December, 2001 conditions described in item 1 of Article 5 of the above reflect the charge against reserves of the unamortized deferred mentioned Decree-Law, as well as investments in associated costs as of that date, relating to the coverage of the increased companies, are recorded based on the equity method. The liability due to early retirements in 1999 and 2000, as well as carrying value of these investments corresponds to the the increased liability due to early retirements during the first percentage of share capital, reserves and results of these half of 2001. companies, equivalent to Banco BPI’s direct or indirect participation in them. This procedure was approved by the Bank of Portugal and had the following effect on the balance sheet: The financial statements of non-operating subsidiary or Reserves (80 402) associated companies, companies in liquidation, those in which Accruals, deferrals and others (assets) (80 402) the investment is of a development nature, or those that are likely to be sold, were excluded from the consolidation and from BASIS OF PRESENTATION application of the equity method. The consolidated financial statements were prepared from the accounting records of Banco BPI and its subsidiary and associated The financial statements, expressed in foreign currencies, were companies. The accounting records are maintained in accordance included in the consolidation after being translated to euro at with the Chart of Accounts for the Portuguese Banking System the exchange rates published by the Bank of Portugal, the established by the Bank of Portugal pursuant to the authority exchange differences resulting from the translation being conferred upon it by item 1 of Article 115 of the General Regime recognised in the income statement. for Credit Institutions and Financial Companies ("Regime Geral das Instituições de Crédito e Sociedades Financeiras"), approved In the case of financial statements prepared in accordance with by Decree-Law 298 / 92 of 31 December (with the changes International Accounting Standard 29 for hyperinflationary introduced by Decree-Law 246 / 95 of 14 September, Decree-Law economies, the impact of adjusting shareholders’ equity to 232 / 94 of 5 December, Decree-Law 222 / 99 of 22 June, current prices is reclassified, before consolidation, to the income Decree-Law 250 / 00 of 13 October, Decree-Law 285 / 2001 of statement. 30 November and Decree-Law 201 / 2002 of 26 September), as well as the rules established in Decree-Law 36 / 92 of 28 March. Goodwill and negative goodwill arising from the difference In addition, consolidation adjustments were made in order to between cost and the corresponding equity value of subsidiary correct the application of some accounting principles. and associated companies as of the date of the first consolidation were fully amortised against reserves in the year of CONSOLIDATION PRINCIPLES acquisition, or of the first consolidation. The financial statements of subsidiary companies were consolidated using the full consolidation method, except if their Consolidated net profit is the sum of Banco BPI’s individual net consolidation would impair achievement of the objective of result and the percentage of net results of the other Group presenting a true and fair view of the equity, financial position companies, equivalent to Banco BPI’s effective participation in and results of the BPI Group (item 1 of Article 5 of Decree-Law them, considering the period they are held, after elimination of 36 / 92 of 28 March). All significant inter-group transactions income and expenses resulting from inter-group transactions. and account balances were eliminated in the consolidation process. The amount of share capital, reserves and net results Equity investments, which were not consolidated by the full corresponding to third party participation in these subsidiaries is consolidation method or accounted for under the equity method, reflected in the caption MINORITY INTERESTS. are stated in accordance with principles described in note 2.4.
Consolidated financial statements | Notes 141 PRINCIPAL ACCOUNTING POLICIES In accordance with current tax legislation, 40% of the additional The following accounting policies are applicable to the depreciation charge resulting from the revaluation of fixed assets consolidated financial statements as of 31 December, 2002 is not deductible for income tax purposes. The resulting deferred and 2001. tax liability is not recorded.
2.1. Accruals basis Property received as settlement of defaulting loans is recorded in
Interest income and expenses are recognised in accordance with the caption OTHER ASSETS by the amount stated in the settlement the principle of accrual-based accounting, being recorded in the agreement, which is the lower of the amount of the outstanding period to which they relate, regardless of when they are received debt or the appraisal value as of the date of the agreement. or paid. However, interest overdue is recorded as interest in These properties remain stated as assets until they are sold, and arrears at the due date, awaiting settlement for a maximum are subject to periodic appraisals, with provisions being recorded period of 30 days. After this period, interest stops being accrued whenever the appraisal value is lower than their book value. on principal recorded as overdue and all interest accrued is reversed, except for interest on mortgage loans which remains Non-recoverable expenditure on leasehold improvements is recorded up to the date it is sent for collection through legal amortised according to its estimated useful life, or the remaining channels. period of the lease contract, with a maximum period of 10 years.
Expenditure on advertising campaigns involving the launching of 2.3. Intangible assets medium and long-term products and the Banco BPI brand are The BPI Group records, in this caption, notary, registration and recorded as deferred costs when incurred and recognised as other expenses relating to share capital increases as well as outside supplies and services in the income statement over the expenses with studies and projects (namely consulting studies following thirty six months. and software) undertaken by third parties, if their impact extends beyond the financial year in which they are incurred. Dividends are recognised when they are declared or received. In accordance with this procedure, interim dividends are recorded Intangible assets are amortised on a straight-line monthly basis as income in the period in which they are declared. using the maximum rates allowed by prevailing tax legislation, which, in general, correspond to a period of three years. Other income and expense items are also recognised on an accruals basis, except for pension liabilities, which are recorded 2.4. Equity investments as explained in note 2.12. Investments in companies that are not consolidated nor accounted for under the equity method are recorded at cost. 2.2. Tangible fixed assets Tangible fixed assets are stated at cost or at revalued amounts, calculated in accordance with the applicable legislation. The net surplus arising from the revaluations is recorded in the shareholders’ equity caption REVALUATION RESERVES.
Depreciation is provided on a straight-line annual basis or on a reducing rate basis using the maximum rates allowed by prevailing tax legislation, which reflect the following estimated useful lives of the assets:
Useful life (years)
Premises 20 to 50 Improvements in premises for own use 10 to 50 Non-recoverable expenditure on leasehold improvements 3 to 10 Equipment 3 to 12 Other fixed assets 3 to 10
142 Banco BPI | Annual Report 2002 Up to 30 June, 2002 provisions for unrealised losses on 2.5. Bonds, shares and other fixed or variable-yield securities investments were recorded in accordance with Bank of Portugal Purchases and sales of securities are recorded on the transaction Notice 3 / 95 of 30 June, which establishes that provisions are dates except where, by force of the contractual terms or of any not required unless one of the following situations applies: legal provision or regulation, the rights and obligations inherent to the securities are transferred at a different date, in which – the company has incurred losses in three years during the last case the operations are only recorded on the date the transfer five years; and, occurs.
– the company is insolvent, has been declared bankrupt, has The procedures for recording securities differ depending on their been subject to some company recovery measure or ceased characteristics and the intention when they are purchased. operating. i) Trading securities As from 30 June, 2002 (inclusive) provisions for unrealised Securities bought for subsequent resale within a period of six losses on equity investments have been recorded in accordance months, with the objective of obtaining a capital gain, are with Bank of Portugal Notices 3 / 95 and 4 / 2002 of 30 June classified as trading securities, provided that their nature and and 25 June, respectively. Therefore, the previous regime was volume do not raise doubts as to their negotiability, taking into maintained for the investments that meet the conditions referred consideration market conditions. to above and, in addition, provisions for unrealised losses on the remaining investments became mandatory. When the unrealised Bonds and other fixed income securities are recorded at cost and loss on an investment – determined using the average of the revalued daily based on their market value, plus accrued daily market prices for the last six months for listed companies, interest. Unlisted bonds and other fixed income securities are or using the company’s equity value multiplied by the factor recorded at cost plus accrued interest. Any negative or positive 1.5 for unlisted companies – exceeds 15% of the corresponding differences arising from the application of these criteria are book value of the investment, a minimum provision of 40% of recognised as losses or gains, respectively (notes 2.8 and 4.5). that excess is required. Shares are recorded at market value or, in the case of unlisted Under the provisions of Bank of Portugal Notice 4 / 2002 of shares, at the lower of cost or estimated market value. 25 June a transitory regime applies to the investments that were Differences between cost and the market value of shares already in the portfolio as of 31 December, 2001. Under this included in the composition of the BVL30 or PSI-20 indexes special regime, provisions and charges to own funds resulting (Euronext) and shares with adequate liquidity are recorded as from unrealised losses on those investments will be gradually expense or income. Differences between cost and the market made up to 2006, if the investments relate to companies that value of other shares are recorded in the asset or liability are not subject to Bank of Portugal or Portuguese Insurance balance sheet caption ACCRUALS, DEFERRALS AND OTHERS, Institute supervision, and up to 2011 if the investments are in depending on whether they represent unrealised losses or gains. companies supervised by those entities. Provisions recorded Where they correspond to unrealised losses, a provision is during 2002 and 2003 may be charged against reserves. Under recorded (notes 2.8 and 4.6). this transitory regime, at 31 December, 2002 Banco BPI recorded provisions corresponding to 25% of the amount that Treasury stock is recorded as explained above, except for must be provided for up to the end of the transitory regime for treasury stock relating to the RVA (Remuneração variável em investments in companies that are not subject to Bank of acções) programme (Variable Remuneration in shares). Portugal or Portuguese Insurance Institute supervision, and 10% in the case of investments in companies subject to their supervision.
Consolidated financial statements | Notes 143 ii) Investment securities The balance of the short-selling of securities account is adjusted Securities acquired with the purpose of being held for a period daily based on the market value of the securities sold, the of more than six months are classified as investment securities. valuation differences being recorded as expenses or income or
deferred in the caption ACCRUALS, DEFERRAL AND OTHERS, Securities issued at a discount are valued at their redemption depending on the valuation criteria applicable to these securities price (nominal value). The difference between nominal value and if they were part of the own trading portfolio. cost is recorded as deferred income. The interest accrued on these securities is recorded as income on a monthly basis, in iv) Treasury Stock relating to the RVA programme (Variable accordance with the implicit interest rate determined on a remuneration in shares) compound basis. Treasury stock granted under a suspense condition, not yet transmitted to the beneficiaries, is recorded at the value of the
Bonds and other fixed income securities issued at their nominal grant, in the balance sheet asset caption ACCRUALS, DEFERRALS AND value are recorded at cost. Accrued interest is accounted for as OTHERS, and is not revalued to market value. As the difference interest receivable. The difference between the original cost of between the cost of the shares and value of the grant is recorded the securities and their redemption value – which represents the as expense or income, the book value corresponds to the sale premium or discount at the time of purchase – is recorded as an value (value of the grant). expense or income over the period to maturity Treasury stock held to hedge the risk resulting from changes in Any positive difference between cost (corrected for the premium the value of share options sold is recorded as trading securities or discount already recognised as expense or income, as while it is related to this programme. Such stock is revalued to appropriate) and the market value of bonds and other fixed market value and the valuation differences are recorded in the income securities is fully provided for (notes 2.8 and 4.5). In caption ACCRUALS, DEFERRALS AND OTHERS. Where the net amount case of bonds and other fixed income securities hedged with off- of these differences and the revaluation of the share options -balance sheet items, the corresponding market value is correspond to a loss, a provision of the same amount is corrected by the implied credit risk. recorded.
The carrying value of securities with interest capitalisation 2.6. Foreign currency operations incorporates the accrued interest. Foreign currency operations are recorded in conformity with the "multi-currency" system, that is in their original currencies. Shares and other variable income securities are recorded at cost. Whenever the market value (or estimated market value, in the The accounting procedures differ depending on the effect the case of unlisted securities) is lower than cost, a provision is operations have on the foreign exchange position. While operations recorded (notes 2.8 and 4.6). which cause a change in a foreign currency’s net balance (for example purchases, sales and incorporation of results in a foreign Treasury stock is recorded as explained above. currency) have a corresponding entry to the foreign exchange position, the setting up or acceptance of deposits and the granting iii) Short-selling of securities or collection of loans have no effect on the foreign exchange Sales of securities that result in short positions are credited to position. the caption short-selling of securities, which is reflected under the balance sheet caption AMOUNTS OWED TO CREDIT INSTITUTIONS OR i) Foreign exchange position and foreign currency swaps
TO CUSTOMERS, depending upon the counter-party. The content and revaluation criteria of foreign currency bills and coins and foreign exchange position, are as follows: Securities purchased to cover short positions arising from the short selling of securities are debited to the caption short-selling Foreign currency bills and coins of securities. Foreign currency bills and coins are revalued daily using the fixing exchange rates published by the Bank of Portugal. Differences arising from the revaluations are recorded as income or expense for the year.
144 Banco BPI | Annual Report 2002 Spot position The purpose of the provisions for loans, securities and interest in The spot position in any particular currency is the net balance of arrears is to cover the risk of non-collection of overdue all assets and liabilities denominated in that currency, plus the instalments of principal or interest (notes 4.3, 4.4, 4.5 and amount of spot transactions pending settlement and all forward 4.27). The amounts provided depend on the existence of any operations maturing in the ensuing two business days. The spot collateral, and increase in proportion to the period of time that foreign exchange position is revalued using the daily fixing has elapsed since the default started. exchange rates published by the Bank of Portugal. The resulting foreign exchange differences (in national currency) are recorded The purpose of the provisions for other doubtful debts is to cover in the foreign exchange position account, with a balancing entry the risk of non-collection of future instalments relating to the to losses or gains. following: principal not yet due on operations with overdue instalments exceeding 25% of the total principal plus overdue Forward position interest; and principal not yet due on all loans to a Customer The forward position in any particular currency is the net when the overdue instalments of that Customer represent at balance of forward operations pending settlement, excluding least 25% of the loans granted plus overdue interest (notes 4.4, those that mature in the ensuing two business days. All 4.12 and 4.27). contracts relating to these operations are revalued at market forward rates or in their absence, at forward rates calculated The Group banks carry out monthly risk assessments of all loans using the interest rates of the respective currencies applicable and guarantees provided and not yet matured, as well as of their for the time period remaining to maturity. Differences arising securities portfolios, in order to assess the adequacy of the between the corresponding amounts in euro after applying the provisions recorded. forward rates and the contracted exchange rates represent the loss or profit resulting from the revaluation of the forward 2.8. Provisions for unrealised losses on securities and other position and are recorded in a foreign exchange position assets revaluation account (in the accruals, deferrals and others Provisions for unrealised losses on securities and other assets are caption) with a balancing entry to expenses or income. recorded in order to cover all unrealised losses arising from the valuation criteria adopted for bonds, shares, other fixed and Foreign currency swaps variable income securities and other assets (notes 2.4, 2.5, 4.5, Swaps and other foreign exchange rate hedging operations are 4.6, 4.9, 4.12 and 4.27). not included in the revaluation of spot and forward positions. The premiums and discounts on these operations are amortised 2.9. Provisions for country risk on a straight line basis over the period to maturity, the The purpose of these provisions is to cover the risks associated corresponding gain or loss being duly recognised. with financial assets and off-balance sheet items over countries considered to be of risk (notes 4.3, 4.4, 4.5, 4.12 and 4.27). ii) Translation to euro of balances expressed in foreign currencies Assets and liabilities expressed in foreign currencies are These provisions are recorded in accordance with the rules translated to euro at the official market rates published by the established by Bank of Portugal Notice 3 / 95 of 30 June, Bank Bank of Portugal. of Portugal Instruction 94 / 96, published in the Bulletin of Rules and Information no. 1 of 17 June, 1996 and the Bank of iii) Translation to euro of income and expenses expressed in Portugal Bulletin under the reference 4903 / 02 / DSBDR of 12 foreign currencies June, 2002. Income and expenses expressed in foreign currencies are translated to euro at the exchange rates in force on the dates 2.10. Provisions for sundry risks they are recognised. i) General credit risks The BPI Group's credit institutions subject to Bank of Portugal 2.7. Provisions for specific credit risk Notice 3 / 95, of 30 June, with the modifications introduced by Provisions are recorded for specific credit risk on loans, Bank of Portugal Notice 2 / 99, of 26 January, record a provision securities and interest in arrears, as well as for other credits of for general credit risks of 1.5% of consumer credit and loans to doubtful collection, in accordance with Bank of Portugal Notice individuals for unspecified purposes and of 1% of other credit 3 / 95, of 30 June. granted, including that represented by acceptances, guarantees and other instruments of a similar nature (notes 4.19 and 4.27).
Consolidated financial statements | Notes 145 In accordance with tax legislation, only 50% of the increases in The past service liability (including the increased liability due to this provision in 2002 and 2001 are accepted as tax-deductible early retirements) is covered by Pension Funds. costs. Increases in this provision as from 1 January, 2003 are not accepted as tax-deductible costs. Under the provisions of Bank of Portugal Notice 12 / 2001, with the modifications introduced by Bank of Portugal Notice 7 / ii) Other risks 2002 of 31 December, the net accumulated amount of the This caption includes provisions to cover other specific risks actuarial gains and losses resulting from changes in the actuarial (notes 4.19 and 4.27). and financial assumptions and changes in the general conditions of the pension plans, as well as amounts which exceed the 2.11. Fund for general banking risks corridor relating to differences between the actuarial and The purpose of this provision is to cover unspecified risks financial assumptions used and the actual amounts, can be associated with the operations of the BPI Group (notes 4.19 recorded as deferred expenses or deferred income and must be and 4.27). amortised at a rate of at least 10% per year, as from the year subsequent to that in which they were determined. At 31 2.12. Retirement and survivor pensions December, 2002 and 2001 the BPI Group recorded, as deferred The majority of Employees of the BPI Group are not covered by expenses, actuarial losses resulting from changes in the actuarial the Portuguese Social Security system. However, the BPI Group and financial assumptions and changes in the general conditions companies that have adhered to the Collective Vertical Labour of the pension plans, as well as amounts which exceed the Agreement (Acordo Colectivo de Trabalho Vertical) for the corridor relating to differences between the actuarial and Banking Sector have assumed the commitment to pay their financial assumptions used and the actual amounts; and the Employees or their families’ pensions for retirement due to age amount that can be allocated to the corridor was recorded in or incapacity, pensions for early retirement or survivor pensions. valuation fluctuations (note 4.13). At 31 December, 2002 and The pensions consist of a percentage, which increases with the 2001 the BPI Group recorded, as deferred income, actuarial number of years of service, applied to their salaries. gains resulting from changes in the actuarial and financial assumptions and changes in the general conditions of the The regime for calculating, recording, funding and expensing the pension plans, as well differences between the actuarial and liability for retirement and survivor pensions is established in financial assumptions used and the actual amounts (note 4.18). Bank of Portugal Notice 12 / 2001 of 23 November. This regime came into force on 31 December, 2001 and introduced several Under the provisions of Bank of Portugal Notice 12 / 2001, the changes in relation to the previous regime: increase in the past service liability resulting from early retirements must be fully covered by a corresponding – requirement to fully fund the pensions under payment and a contribution to the Pension Fund, such contribution having to be minimum of 95% of the past service liability for current expensed over a maximum period of 10 years, not exceeding the personnel; fourth year following that in which the retirement would presumably have occurred. At 31 December, 2002 and 2001 – establishment of a 10% corridor based on the higher of the the BPI Group recorded, in deferred expenses, the balance of present value of the past service liability or the amount of the the contributions to the Pension Fund resulting from the pension fund, so that the actuarial gains and losses resulting increase in the liability due to early retirements not yet charged from differences between the actuarial and financial to expenses (note 4.13). assumptions used and the actual amounts are not reflected in the statement of profit and loss, provided that the net accumulated amount is within this limit; and,
– non utilisation, in the calculation of the present value of the past service liability of current personnel, of decreases resulting from incapacity, unless that amount includes the present value of the past service liability relating to the guarantee of pensions due to incapacity or if the risk of incapacity is fully transferred to an insurance company.
146 Banco BPI | Annual Report 2002 The increase in the past service liability for current Employees, 2.15. Factoring due to non utilisation of the decreases resulting from incapacity, Assets resulting from factoring operations with recourse are will be recognised as a cost and funded in accordance with a recorded in the balance sheet, as loans granted, by the amount plan of uniform annual instalments over a maximum period of advanced on account under the terms of the corresponding 20 years as from the year 2002. The plan was approved by the contracts. Bank of Portugal. At 31 December, 2002 and 2001 the BPI Group recorded, in off balance sheet accounts, the increase in Assets resulting from factoring operations without recourse are the liability resulting from the above matter, not yet amortised or recorded in the balance sheet, as loans granted, by the amount funded (note 4.28). of the credit taken, with a corresponding entry to the liability
caption CREDITORS FOR FACTORING CONTRACTS. The amounts 2.13. Income tax advanced under the contracts are debited to the caption
All the Group companies are subject to income tax individually. CREDITORS FOR FACTORING CONTRACTS.
Banco BPI and its subsidiary and associated companies with The invoices received under factoring contracts with recourse, in head offices in Portugal are subject to the tax regimes which amounts are not advanced, are recorded in the off-balance established in the Corporate Income Tax Code (Portuguese sheet caption, CONTRACTS WITH RECOURSE – invoices not financed, initials – CIRC) and in the Statute of Tax Benefits. by the amount of the invoices received. The balance of this caption is reduced as the invoices are settled. Banco BPI and its subsidiaries do not record deferred tax assets, namely those arising from tax losses carried forward, except for Commitments under unused credit lines are recorded as off- associated companies, where that is authorised by the -balance sheet items. Portuguese Official Chart of Accounts ("Plano Oficial de Contabilidade") or by the Portuguese Insurance Institute. Also, 2.16. Derivatives the BPI Group does not record deferred tax liabilities resulting Interest rate swaps from the suspension, from taxation, of gains on the sale of Interest rate swaps are realised for hedging purposes and are equity investments up to 31 December, 2000, as it is expected recorded as off-balance sheet items at their notional value. that such taxes will not have to be paid, due to reinvestment in assets that are eligible for tax purposes, and the possibility of Interest income and expenses are recorded in the statement using the Group’s tax losses carried forward. of income on an accruals basis. Swaps are revalued only if provisions are recorded for losses on the assets hedged. 2.14. Financial Leasing As lessee Forward rate agreements Leased tangible fixed assets are depreciated in accordance with Forward rate agreements (FRA) are recorded, at their notional the procedures described in note 2.2. Lease instalments value, in off-balance sheet accounts classified as to whether comprise an interest charge (financial expense) and a principal they are realised for hedging or trading purposes. The entry is repayment component. Interest is recorded in the statement of reversed at the settlement date. income during the term of the lease in such a manner as to produce a constant interest rate charge on the outstanding balance for each period. Liabilities are reduced by the amounts corresponding to the principal repayment component of each of the instalments.
As lessor Assets held under financial lease are recorded in the balance sheet as loans granted and are carried at the net amount paid on the date the assets are acquired. The lease instalments are composed of an interest income component and a principal repayment component. The interest income component for each period reflects a constant rate of return on the outstanding principal amount.
Consolidated financial statements | Notes 147 In the case of hedging agreements the net interest received or Options on indexes for hedging purposes are revalued monthly paid on the settlement date is recognised over the period of the based on the evolution of the underlying indexes with profits and operation and charged or credited to the expense or income losses being recorded in the statement of income with a accounts associated with the hedged liabilities or assets. corresponding entry to the captions ACCRUALS, DEFERRALS AND
OTHERS. These profits and losses are offset by the opposite Trading agreements are revalued monthly based on the loss or results of the operations covered. Premiums paid on options profit that would result if settlement occurred on the revaluation purchased and premiums received on options sold are recorded date. The resulting negative or positive differences are recorded as deferred costs and deferred income and amortised over the as losses or gains, with a corresponding entry to the accruals, period of the contracts. deferrals and others captions. 2.17. Third party securities received for safekeeping Futures Third party securities received for safekeeping are recorded as Futures contracts entered into for trading purposes and for the off-balance sheet items at their market value or, in its absence, proprietary account are recorded as off-balance sheet items at at their nominal value (for fixed income securities), at cost (for their notional value on the date of the first acquisition. This variable income securities) or at their equity value (for entry is reversed on the date the positions are closed. participating units in investment funds).
These positions are revalued daily, based on the market price or at the closing-out price (in the case of closed positions), with profits and losses being recorded in the statement of income with a corresponding entry to other assets (profits) and other liabilities (losses). The balances on these accounts are cleared by corresponding entry to the financial movements arising daily by the settlement of the market price variations.
Options Options contracts are recorded as off-balance sheet items at their notional value and are classified according to their nature (hedging or trading).
Trading options are revalued monthly, based on the available market quotations, with profits and losses being recorded in the 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.
148 Banco BPI | Annual Report 2002 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, 2002 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 64 266 0.4 2 192 0.9 7 065 0.2 73 523 0.4 Mining 57 817 0.4 171 0.1 8 465 0.3 66 453 0.3 Manufacturing industries Beverage, tobacco and food 281 940 1.7 3 335 1.3 53 375 1.7 3 481 0.5 11 342 142 1.8 Textiles and clothing 308 230 1.9 18 442 7.2 47 997 1.5 799 0.1 2 504 1.1 377 972 1.8 Leather and related products 39 707 0.2 4 811 1.9 2 831 0.1 4 47 353 0.2 Wood and cork 116 349 0.7 4 441 1.7 42 797 1.4 3 370 0.5 166 957 0.8 Pulp, paper and cardboard and graphic arts 123 167 0.7 4 130 1.6 66 093 2.1 0.1 107 193 497 0.9 Coke, oil products and nuclear fuel 911 42 8 387 0.3 9 340 Chemical and synthetic or artificial fibres 65 634 0.4 740 0.3 30 982 1.0 249 25 97 630 0.5 Rubber and plastic materials 67 292 0.4 4 173 1.6 12 725 0.4 216 84 406 0.4 Other mineral non-metallic products 323 997 2.0 1 024 0.4 56 495 1.8 4 428 0.6 350 0.2 386 294 1.9 Metalworking industries 168 552 1.0 4 006 1.6 57 337 1.8 5 500 0.8 61 0.1 235 456 1.1 Manufacturing of machinery and equipment 91 100 0.6 1 976 0.8 32 543 1.1 89 125 708 0.6 Manufacturing of electrical and optical equipment 43 763 0.3 2 957 1.2 39 388 1.3 1 746 0.2 2 933 1.3 90 787 0.5 Manufacturing of transport material 96 699 0.6 1 355 0.5 76 746 2.5 5 000 0.7 658 0.3 180 458 0.9 Other manufacturing industries 73 515 0.4 3 993 1.6 10 239 0.3 8 87 755 0.4 Electricity, gas and water 272 452 1.7 871 0.3 324 415 10.4 68 259 9.5 1 543 0.7 667 540 3.2 Construction 715 364 4.4 46 713 18.2 698 780 22.4 16 230 2.3 1 256 0.5 1 478 343 7.2 Wholesale and retail trading 1 191 390 7.3 28 851 11.3 449 681 14.4 13 723 1.9 3 898 1.7 1 687 543 8.2 Restaurants and hotels 138 640 0.8 1 890 0.7 26 160 0.8 1 250 0.2 149 0.1 168 089 0.8 Transport, warehousing and communication 511 815 3.1 3 178 1.2 224 200 7.2 2 344 0.3 3 434 1.5 744 971 3.6 Banks and other credit institutions 940 340 0.1 53 740 1.7 22 730 3.2 3 665 1.6 81 415 0.4 Other financial institutions and insurance companies 407 787 2.5 125 9 074 0.3 9 25 320 11.3 442 315 2.1 Investment holding companies 550 545 3.4 3 145 1.2 197 108 6.3 69 434 9.7 3 097 1.4 823 329 4.0 Real estate, rental and services provided to companies 859 632 5.3 6 948 2.7 205 780 6.6 17 077 7.6 1 089 437 5.3 Public administration, defence and mandatory social security 436 551 2.7 133 0.1 68 548 2.2 505 232 2.4 Education, health care and welfare 249 694 1.5 3 113 1.2 35 724 1.1 967 0.4 289 498 1.4 Leisure, cultural and sports activities 63 887 0.4 194 0.1 66 852 2.1 63 337 28.2 194 270 0.9 Other service companies 34 615 0.2 488 0.2 1 374 40 0.1 36 517 0.2 Individuals Housing loans 5 560 609 34.0 42 069 16.4 5 602 678 27.1 Others 2 290 584 14.0 50 656 19.8 43 558 1.4 2 384 798 11.5 Multinational financial institutions 4 037 4 037 Other sectors 2 647 119 46 4 107 1.8 6 919 Non-residents 1 147 038 7.0 9 765 3.8 164 276 5.3 496 583 69.4 90 066 40.1 1 907 728 9.2 16 361 166 100.0 256 386 100.0 3 122 781 100.0 715 351 100.0 224 706 100.0 20 680 390 100.0 1) The loans overdue refer to loans granted to costumers. 2) Includes guarantees and sureties, open documentary credits, stand-by letters of credit, guarantee deposits and indemnities 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 149 3.2 Securities and equity investments At 31 December, 2002 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 3.625% August 1999 / 2004 16 020 666 795 0.01 0.01 0.01 164 518 TB 4.8125% April 1998 / 2003 2 345 765 975 0.01 0.01 0.01 24 371 TB 4.875% August 2002 / 2007 1 854 149 095 0.01 0.01 0.01 19 909 TB 5.45% September 1998 / 2013 5 958 860 428 0.01 0.01 0.01 65 272 TB 6.625% February 1997 / 2007 2 000 017 730 0.01 0.01 0.01 23 571 TB 8.875% January 1994 / 2004 11 032 900 0.01 0.01 0.01 127 TB 9.5% February 1996 / 2006 97 336 996 0.01 0.01 0.01 1 232 TB 11.875% February 1995 / 2005 269 607 959 0.01 0.01 0.01 3 460 302 460 Bonds and other fixed income securities – issued by non-residents Issued by foreign government entities Bonds National Bank of Angola 240 000 16.39 13.67 13.67 3 933 Belgium Kingdom – 4.75% (28/09/2006) 20 400 000 1.00 1.04 1.05 21 719 Belgium Kingdom – 5% (28/09/2012) 25 220 1 000.00 1 043.74 1 051.90 26 854 Belgium Kingdom – 6.25% (28/03/2007) 3 470 000 000 0.01 0.01 0.01 40 186 Belgium Kingdom – 7.5% (29/07/2008) 880 000 000 0.01 0.01 0.01 10 744 Belgium Kingdom – 8% (24/12/2012) 230 000 000 0.01 0.01 0.01 2 975 Belgium Kingdom – 8.5% (01/10/2007) 835 000 000 0.01 0.01 0.01 10 313 Bundesobligation – 4.5% (17/08/2007) 1 010 000 000 0.01 0.01 0.01 10 947 Bundesobligation – 5% (04/07/2012) 150 000 000 0.01 0.01 0.01 1 627 Bundersrepublik Deutschl 3.75% (04/01/2009) 125 000 000 0.01 0.01 0.01 1 300 Bundersrepublik Deutschl 4.5% (04/07/2009) 1 890 000 000 0.01 0.01 0.01 20 060 Bundersrepublik Deutschl 5.625% 4 / 28 490 000 000 0.01 0.01 0.01 5 708 Bundesschatzanweisungen – 4% (25/06/2004) 1 140 000 000 0.01 0.01 0.01 11 842 Buonni Poliennali – 3.5% (15/09/2005) 46 550 1 000.00 1 008.16 1 013.10 47 633 Buonni Poliennali – 4.5% (01/05/2009) 5 201 000 000 0.01 0.01 0.01 54 282 Buonni Poliennali – 5% – (01/05/2008) 4 000 000 000 0.01 0.01 0.01 42 961 Buonni Poliennali – 5.25% – (15/12/2005) 10 000 1 000.00 1 044.30 1 061.50 10 637 Buonni Poliennali – 5.25% – (01/08/2011) 21 222 1 000.00 1 062.03 1 073.60 23 248 Buonni Poliennali – 5.5% – (11/01/2010) 35 650 1 000.00 1 077.69 1 092.00 39 252 Buonni Poliennali – 7.75% – (01/11/2006) 1 945 000 000 0.01 0.01 0.01 22 771 Fed Home Loan MTG Corp – 2.875% (15/09/2005) 7 750 953.56 966.48 972.92 7 617 Fed Home Loan MTG Corp – 3.125% (30/12/2005) 2 500 953.56 953.10 953.28 2 383 Fed Home Loan MTG Corp – 4.625% (15/05/2005) 8 700 1 000.00 1 030.50 1 036.20 9 268 Fed Home Loan MTG Corp – 4.625% (15/02/2007) 5 000 1 000.00 1 030.85 1 042.90 5 417 France (Govt of) – 4.75% – (25/10/2012) 15 750 000 1.00 1.02 1.04 16 469 France (Govt of) – 5% – (25/04/2012) 25 150 000 1.00 1.04 1.06 27 465 France (Govt of) – 5% – (25/10/2011) 9 850 000 1.00 1.04 1.06 10 531 France OAT – 4% – (25/10/2009) 66 800 000 1.00 0.99 1.01 67 805 Netherlands Government – 3.75% (15/07/2009) 10 100 000 1.00 0.98 1.00 10 236 Netherlands Government – 5% (15/07/2011) 20 150 000 1.00 1.05 1.06 21 817 Netherlands Government – 5.5% (15/07/2010) 4 350 000 1.00 1.08 1.10 4 875 Obligac. Del Estado – 4.25% (31/10/2007) 69 200 1 000.00 1 018.27 1 034.80 72 100 Obligac. Del Estado – 4.5% (30/07/2004) 52 0.01 0.01 0.01 Obligac. Del Estado – 4.65% (31/10/2004) 7 000 1 000.00 1 029.90 1 033.60 7 290
150 Banco BPI | Annual Report 2002 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.) Obligac. Del Estado – 5% (30/07/2012) 9 700 1 000.00 1 049.12 1 054.20 10 430 Obligac. Del Estado – 5.15% (30/07/2009) 1 314 201 176 0.01 0.01 0.01 14 412 Obligac. Del Estado – 5.35% (31/10/2011) 43 875 1 000.00 1 060.79 1 081.60 47 847 Obligac. Del Estado – 5.4% (30/07/2011) 28 300 1 000.00 1 070.65 1 085.50 31 364 Obligac. Del Estado – 5.5% (30/07/2017) 4 125 1 000.00 1 060.20 1 090.70 4 594 Rep. Greece – 4.65% (21/06/2005) 21 000 1 000.00 1 029.75 1 038.50 22 587 Rep. Greece – 5.25% (18/05/2012) 34 100 1 000.00 1 046.24 1 060.20 37 860 Rep. Greece – 5.35% (18/05/2011) 5 750 1 000.00 1 048.70 1 071.10 6 350 Rep. Greece – 5.95% (24/03/2005) 5 000 000 000 0.01 0.01 0.01 55 521 Rep. Greece – 6% (19/02/2006) 1 000 000 000 0.01 0.01 0.01 11 340 Rep. Greece – 6.3% (29/01/2009) 1 142 0.01 0.01 0.01 Rep. Greece – 7.5% (20/05/2013) 763 000 000 0.01 0.01 0.01 9 849 Rep. of Ireland – 4.6% (18/04/2016) 250 000 000 0.01 0.01 0.01 2 586 Rep. of Austria – 4% (15/07/2009) 14 900 1 000.00 988.62 1 009.40 15 316 Rep. of Austria – 5.25% (04/01/2011) 30 000 1 000.00 1 064.24 1 075.60 33 826 Rep. of Austria – 5.5% (15/01/2010) 46 600 1 000.00 1 080.57 1 092.90 53 387 Rep. of Austria – 5.875% (15/07/2006) 1 050 000 000 0.01 0.01 0.01 11 704 U.S. Treasury – 5.625% (15/05/2008) 11 150 953.56 1 068.88 1 084.94 12 172 U.S. Treasury – 5.875% (15/11/2004) 3 750 953.56 1 025.81 1 030.55 3 891 U.S. Treasury – 6.5% (15/02/2010) 2 300 953.56 1 120.89 1 144.27 2 685 U.S. Treasury – 6.5% (15/10/2006) 2 500 953.56 1 092.01 1 097.49 2 776 U.S. Treasury – 6.75% (15/05/2005) 10 000 953.56 1 057.46 1 063.97 10 721 U.S. Treasury – 6.875% (15/05/2006) 7 300 953.56 1 088.48 1 098.98 8 083 1 081 566 Issued by other foreign entities Other bonds Cimentos Bonds / 2002 100 000 4.13 4.13 413 TDM 2001 47 050 3 098.02 3.10 161 574 Shares and other variable-yield securities – issued by residents Shares Banco Comercial Português – Nom. 641 192 1.00 2.45 2.28 1 462 Banco Espírito Santo – Nom. 87 912 5.00 10.97 12.50 1 099 Brisa – Priv. 151 168 1.00 5.18 5.28 798 Brisa – Particulares 18 360 1.00 4.52 4.89 83 Cimpor – Cim. de Portugal – SGPS 19 891 5.00 17.66 16.00 318 Cofina – SGPS 22 560 0.50 2.22 2.33 53 EDP – Electricidade de Portugal – Nom. 893 447 1.00 1.64 1.59 1 421 Ibersol – SGPS 1 221 1.00 3.33 3.50 4 Impresa – SGPS 40 103 1.00 1.87 1.90 76 Jerónimo Martins – SGPS 17 296 5.00 6.56 6.95 120 Novabase, SGPS 10 152 0.50 5.63 5.80 59 Pararede – SGPS 56 212 0.40 0.24 0.20 11 Portucel Industrial – Nom. 91 744 1.00 1.24 1.16 106 Portugal Telecom – Nom. 153 376 1.00 6.55 6.55 1 005 PT Multimédia, SGPS – NOM. 29 200 0.50 9.54 10.02 293 SAG GEST – Soluções Autom. Globais, SGPS 16 920 1.00 1.75 1.48 25 Semapa – Soc. de Inv. e Gestão – SGPS 20 516 1.00 4.28 3.30 68 SIC – Soc. Independente de Comunicação 321 963 5.00 194.45 62 607 48 181 Sonae.Com., SGPS 25 380 1.00 1.89 1.57 40
Consolidated financial statements | Notes 151 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Shares and other variable-yield securities – issued by residents Shares (cont.) Sonae SGPS 1 719 664 1.00 0.41 0.40 688 Vodafone-Telecel – Comunicações Pessoais – Nom. 60 092 0.50 8.51 7.40 445 70 781 48 181 Shares and other variable-yield securities – issued by non-residents Shares Banco Bilbao Vizcaya Argentaria 50 000 0.49 9.57 9.12 455 Banco Santander Central Hispano 1 400 0.50 6.66 6.54 9 Banco Santander Central Hispano (Euronext) – N 98 038 0.50 6.47 6.52 633 Endesa – Empresa Nacional Electricidade 11 000 1.20 11.40 11.15 122 Telefonica 71 600 1.00 8.53 8.53 611 1 830 Participating units Rydex Consumer Products 8 108 108 0.01 58 Rydex Leisure Fund 9 600 000 0.01 57 Rydex Series Trust Healthcare Fund 6 543 075 0.01 57 Rydex Transportation Fund 10 810 811 0.01 57 Rydex US Government Money Mark Fund 244 517 450 0.00 233 462 Treasury stock Banco BPI (RVA 2001)1 1 057 669 1.00 2.19 2.18 2 316 Banco BPI 180 466 1.00 2.12 2.18 394 2 710 1 460 383 48 181 INVESTMENT SECURITIES Fixed income securities – issued by government entities Issued by Portuguese government entities Treasury bonds TB 4.8125% April 1998 / 2003 15 000 087 0.01 0.01 0.01 150 TB 5% June 2002 / 2012 50 000 000 000 0.01 0.01 0.01 511 138 TB 5.25% October 2000 / 2005 7 650 000 000 0.01 0.01 0.01 80 450 TB 10.625% June 1993 / 2003 6 725 403 383 0.01 0.01 0.01 67 614 TB 11.875% February 1995 / 2005 445 669 088 0.01 0.01 0.01 4 638 TB 3.625% August 2004 260 004 000 0.01 0.01 0.01 2 563 OTRV 1996 / 2003 86 784 008 0.01 0.01 0.01 867 667 420 Other bonds Portuguese Republic – USD – 5.75% (8/10/2003) 60 000 953.56 953.56 985.65 57 214 57 214 Issued by other Portuguese government entities Bonds Governo Regional da Madeira / 1994 float. 8 167 816 0.01 0.01 0.01 82 1 82 1 Issued by foreign government entities Bonds National Bank of Hungary – DEM / 1993 – 8.75% (08/09/2003) 8 000 511.29 511.29 529.70 4 090 Gov. Spain – JPY / 1995 – 4.75% (14/03/2005) 100 80 392.31 80 392.31 88 628.51 8 039 Greece Republic – EUR / 1998 – 5.75% (31/03/2008) 15 000 000 1.00 0.99 1.00 14 894 Greece Republic – JPY / 1999 – 0.76% (29/01/2004) 1 000 8 039.23 8 027.69 8 039.23 8 037 Xunta de Galicia – PTE / 1996 Float. Rate (04/07/2003) 2 500 498.80 498.67 498.30 1 247 1 36 307 1
1) The difference between the average acquisition cost and the market value is recorded in the balance sheet caption ACCRUALS, DEFERRALS AND OTHERS (Note 2.5).
152 Banco BPI | Annual Report 2002 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Fixed income – other issuers Issued by other Portuguese entities Cash bonds Banco Alves Ribeiro / 1999 – A Series – Cash bonds 30 000 50.00 50.00 50.00 1 500 Banco Alves Ribeiro / 2001 – 1st Issue – Cash bonds 500 5 000.00 5 000.00 2 500 Credifin / 2000 – 1st Issue – 1st Serie – Cash bonds 150 000 50.00 50.00 50.00 7 500 Leasimo / 98 – 1st Issue – Cash bonds 249 398 949 0.01 0.01 0.01 2 494 13 994 Other bonds Auto Sueco / 1999 896 000 5.00 5.00 5.00 4 480 Auto Sueco / 2000 1 000 000 5.00 5.00 5.00 5 000 Cofina SGPS / 98 (Obrig. s/ warrants) 13 020 4.99 4.99 4.91 65 1 Est. Jer. Martins & F.º / 1996 (Warrant) 425 963 827 0.01 0.01 0.01 4 230 119 Fábrica Textil de Vizela / 1987 (Ac. Cred.) 127 800 4.41 4.18 542 317 Fábrica Vidros Barbosa & Almeida / 1997 698 317 056 0.01 0.01 0.01 4 074 83 Fapobol / 1995 200 000 1.24 2.14 216 Foncar 73 800 3.12 3.12 257 29 Imoloc, SGPS 180 000 1.87 1.87 334 Imparsa / 1998 (Obrig. s/ war.) 949 711 0.01 0.01 0.01 9 1 Jerónimo Martins / 97 404 087 649 0.01 0.01 0.01 5 353 440 Lisnave – Estaleiros Navais de Lisboa 1992 9 854 251 0.01 0.01 0.01 81 Modelo Continente SGPS 95 / 03 11 072 316 0.01 0.01 0.00 55 Pargeste / 1996 700 000 4.99 4.96 4.99 3 485 Polimaia / 89 – Série C 4 000 2.49 1.85 10 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 0.01 0.01 354 Semapa – Soc. Inv. Gestão, SGPS 1 706 886 404 0.01 0.01 0.01 17 069 256 Soares da Costa / 2000 1 250 000 5.00 4.98 5.00 6 230 Solidal / 1998 350 000 4.99 4.99 4.99 1 746 Somague SGPS / 1998 115 084 4.99 4.99 3.42 574 180 59 164 1 426 Commercial paper Climaespaço 24th 1 559 Comp. Port. Computador Em 11th 2 369 Comp. Port. Computador Em 26th 1 250 Conduril 18th 2 500 Conduril 19th 7 500 Finantel SGPS 6th 1 665 Incompol 5th 623 Isar Rakoll – 29th Issue 249 J.B.Fernandes – 43th Issue 500 JMR Gestão Emp Retalho 10 9 650 JMR Gestão Emp Retalho 15 3 500 Jomar Issue 106 300 Jomar Issue 108 3 070 M&J Pestana – 109th 1 250 Manuel Poças Junior 5th 469 RAR Issue 97 2 700 Recheio SGPS 8th 8 200 Ren-Rede Elec Nac 41st 20 000 Ren-Rede Elec Nac 42nd 26 650 Ren-Rede Elec Nac 53rd 10 350
Consolidated financial statements | Notes 153 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Commercial paper (cont.) Ren-Rede Elec Nac 54th 5 700 Ren-Rede Elec Nac 55th 4 000 Soc. Franc. Man. Santos 9th 10 510 Soc. Vi. Terras Valdigem 6th 312 Solverde 116th 5 000 Tertir 12nd 2 344 Vic SGPS Issue 62 4 988 137 208 Issued by foreign entities Issued by international financial entities Bonds BEI – PTE / 1995 – Float. rate (Mar. 2005) 5 226 600 4.99 5.00 4.86 26 072 685 BEI – PTE / 1995 – Zero coupon (Aug. 2003) 23 548 395 143 4.99 0.00 117 459 BEI – PTE / 1996 F.R.N. (Dec. 2006) 3 299 500 4.99 4.99 4.98 16 458 34 159 989 719 Issued by other foreign entities Other bonds Aegis SRL – CL 1 Float. Rate (01/06/2016) 50 65 083.44 65 083.44 64 758.02 3 254 17 Allianz Fin. II B. V. – 6.125% (31/05/2022) 2 500 1 000.00 989.50 998.00 2 474 Argentaria Global Finance – PTE / 1997 (27/02/2007) 300 498.80 498.80 540.75 150 Avalon Capital Ltd. 2 – Float. Rate (24/05/2012) 4 000 953.56 953.56 953.56 3 814 Avalon Capital Ltd. 2 – Float. Rate (24/05/2012) 10 000 953.56 952.83 925.38 9 530 276 Brazil Div Pymt rights – Float. Rate (20/03/2007) 10 000 953.56 953.56 953.56 9 536 CaixaVigo – PTE / 1998 – Float. Rate (27/03/2003) 500 000 4.99 4.99 4.99 2 495 Crediop Overseas Bank Limited – PTE / 1996 – F. Rate (30/06/2003) 1 000 000 4.99 4.99 4.99 4 988 Crédit Local France Zero Coupon – PTE / 2007 25 000 498.80 532.37 757.67 17 270 CVRD Finance Ltd. Float. Rate (15/10/2007) 30 95 356.16 95 356.17 96 658.21 2 861 Deutshe Telekom Int Fin – 5.875 (11.07.06) 2 500 1 000.00 1 018.80 1 030.20 2 546 Dutch Mor. Port. Loans (15.9.34) – O. Hip – Cl. B 8 500 000.00 500 850.00 500 625.00 4 006 1 EFG Hellas PLC – Float. Rate (07/02/2003) 11 250 1 000.00 996.90 1 000.55 11 249 EFG Ora Funding Ltd. – 2% – conv. (04/05/2005) 25 000 1 000.00 1 000.00 1 000.00 25 000 El Monte Int Finance – Float. Rate (12/12/2005) 5 000 1 000.00 998.48 999.10 4 993 Eurofima – PTE / 1994 – Float. Rate (17/08/2004) 2 632 000 4.99 4.99 5.01 13 128 Eurofima – PTE / 1995 – Float. Rate (19/01/2005) 6 000 000 4.99 4.99 4.98 29 928 75 Eurofima – PTE / 1998 – Float. Rate (28/05/2008) 1 564 4 987.98 4 987.98 4 918.65 7 801 108 Euro Vip – USD / 1990 – Float. Rate (23/11/2030) 6 000 953.56 953.56 762.85 5 721 1 144 Finbnk Trd & Div Pymt – Tr-Tv (15/03/2005) 5 000 692.31 692.31 692.31 3 461 France Telecom – 5.75% (14/03/2004) 5 000 1 000.00 1 021.90 1 023.55 5 106 France Telecom – 7% (23/12/2009) 2 500 1 000.00 1 001.50 1 015.40 2 504 Goldman Sachs Group – PTE / 1997 – Float. Rate (24/04/2007) 10 000 498.80 498.80 489.45 4 988 94 Hfc Bank PLC – Float. Rate (02/05/2006) 50 100 000.00 99 777.00 95 685.00 4 993 208 Ibercaja Finance – EUR / 1998 – Float. Rate (07/07/2003) 5 000 1 000.00 998.05 999.40 4 999 2 Imperial Tobacco Canada – 5.125% (14/11/2006) 2 500 1 000.00 1 030.30 1 033.25 2 575 Imperial Tobacco Canada – 5.75% (06/06/2005) 2 500 1 000.00 1 034.00 1 040.10 2 584 International Endesa BV – 5.25 (22/02/2006) 2 500 1 000.00 1 032.20 1 034.95 2 580 Italease Finance Spa (10/03/2011) O. Hip. – Cl. A 5 000 1 000.00 998.90 1 000.00 4 995 Lafarge – 5.125% (26/06/2006) 4 000 1 000.00 1 025.12 1 030.65 4 100 Lone Star Industr. Inc. 5.875% (08/11/2004) 5 000 1 000.00 995.02 922.70 4 991 377 Madison Avenue C.Ltd. (24/03/2014) – O. Hip. Cl. A 10 476 780.78 476 780.80 470 389.55 4 768 64 MPS Capital Trust I – Perp. Bonds 6 200 1 000.00 1 042.20 1 048.74 6 447 NBG Finance PLC – Float. Rate (25/06/2012) 7 500 1 000.00 993.95 991.00 7 455 22
154 Banco BPI | Annual Report 2002 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Issued by other foreign entities Other bonds (cont.) OTE PLC 10 000 1 000.00 982.38 1 067.45 9 884 Public Power Corp. – 6.25% (08/11/2010) 10 000 1 000.00 1 002.00 1 000.00 10 016 16 Public Power Corp. – ITL / 1999 – Float. Rate (08/01/2004) 16 200 516.46 515.32 517.75 8 363 Repsol Intl. Finance – 3.75% (23/02/2004) 25 200 000.00 197 250.00 197 550.00 4 934 Royal KPN NV – 3.5% – Conv. (24/11/2005) 10 000 1 000.00 1 000.00 972.00 10 000 280 Skandinaviska Enskilda – 6.75% (29/06/2049) 480 25.00 22.69 23.88 11 Standard Chartered Cap Trust – Perp. Bonds 10 000 1 000.00 1 028.50 1 100.34 10 267 Stichting Eurostar CDO (10/03/2013) O.H – Cl – A1 10 493 925.16 493 925.16 487 923.97 4 939 60 Tafisa, S.A. 80 60 100.16 60 101.21 4 808 Telecom Italia SPA – 6.25% (01/02/2012) 2 500 1 000.00 1 043.10 1 050.21 2 607 Telefonica Eespanha – 4.5% (14/04/2009) 120 10 000.00 9 660.00 9 788.49 1 159 Telefonica Europe – USD / 1997 – 6.375% (08/01/2003) 19 236 953.56 901.89 954.52 18 337 Union Fenosa Finance – 4.25% (02/11/2004) 25 100 000.00 99 900.00 99 972.00 2 497 315 112 2 744 Commercial paper Brazcomp One Ltd. 5th Issue 19 833 19 833 Variable-yield securities – Issued by Portuguese entities Acções Alar – Emp. Ibérica de Material Aeronautico, S.A. 2 200 4.99 9.02 20 Apis – Soc. Ind. Parquetes Azarujense 65 000 4.99 Boavista Futebol Clube 21 900 5.00 5.00 110 Brasopi – Comércio de Vestuário 649 420 1.00 3.99 2 591 1 944 Brisa (Privatizadas) 72 616 1.00 5.32 5.28 368 Buciqueira – SGPS – Cap. Red. – Issue 2001 8 5.00 112.23 1 Caderno Verde S.A. 18 065 4.99 53.51 967 725 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 Chipidea – Microelectrónica, S.A. 79 883 0.50 15.47 1 237 Cimpor – Cimentos de Portugal, S.A. 2 630 5.00 15.50 16.00 37 Companhia Águas da Fonte Santa de Monfortinho, S.A. 10 5.00 4.50 Companhia Aurifícia, S.A. 578 7.48 41.42 24 Companhia Aurifícia, S.A. 30 3.74 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 0.80 315 213 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. 41 190 100.00 100.00 4 119 Finantel, SGPS 3 335 840 0.50 2.19 7 305 3 000 Fit – Fomento e Industria do Tomate, S.A. 148 4.99 16.95 3
Consolidated financial statements | Notes 155 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Variable-yield securities – Issued by Portuguese entities Shares (cont.) Foncar – Org. Industrial Com. Textil, S.A. 6 4.99 4.11 Futebol Clube do Porto 105 000 5.00 5.13 3.31 539 192 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 Gregório & Ca. 1 510 4.99 2.89 4 Ibersol SGPS 104 473 1.00 4.91 3.50 512 147 Impresa – SGPS 270 713 1.00 5.68 1.90 602 88 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 21.16 2 Jotocar – João Tomás Cardoso, S.A. 3 020 4.99 2.49 8 Lisnave – Est. Navais 180 5.00 4.99 1 Matur – Sociedade de Empreend. Tur. da Madeira, S.A. 13 435 4.99 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 Myplace – Conteúdos Imobiliários Internet 16 667 1.00 1.00 17 17 Nutroton – Industrias da Avicultura 11 395 5.00 4.38 50 Pema, S.A. 532 2.49 0.07 Pirites Alentejanas, S.A. 78 473 5.00 0.00 Porto de Cavaleiros, SGPS 2 4.99 Portugal Telecom – N 4 080 1.00 14.04 6.55 57 31 Ricon 76 923 5.00 32.42 2 494 Salvador Caetano, Ind. Maq. e Veic. de Transp., S.A. 161 925 1.00 4.70 3.00 638 152 Salvor – Soc. Investimentos Hoteleiros, S.A. 10 5.00 Secca – Construções Metálicas – Ac. Ord. Issue 92 3 627 4.99 4.99 18 18 Secca – Pref. S/ Voto – Issue 92 3 627 4.99 4.99 18 18 Semapa – Soc. Inv. Gestão – SGPS – Stock Split 728 1.00 4.34 3.30 3 Senal – Soc. Nacional de Promoção de Empresas, S.A. 450 0.50 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. 40 2.50 2.49 Sonae SGPS 51 868 1.00 2.55 0.40 132 112 Sopeal – Soc. Promoção Educacional Alcacerense, S.A. 100 4.99 4.99 Sorefame – Socs. Reunidas Fabricações Metálicas, S.A. 31 5.00 9.81 SPC – Serviço Português de Contentores, S.A. 2 4.99 4.99 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 4.98 40 Textil Lopes da Costa, S.A. 4 900 4.99 1.70 8 8 Turopa – Operadores Turisticos, S.A. 5 4.99 4.98 TVTEL – G.P. 191 250 4.98 7.18 1 374 Unicer – União Cervejeira, S.A. 1 002 1.00 8.07 8 Whatevernet 132 600 0.50 9.78 1 297 Xelb Cork – Co. e Ind. Cortiça 87 4.99 4.99 40 512 9 005
156 Banco BPI | Annual Report 2002 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Variable-yield securities – Issued by Portuguese entities (cont.) Participating units Frie BPI 1 600 000 4.99 4.99 2 993 306 Frie – IPE Capital Retex / Paiep 20 24 939.89 24 939.89 499 Frie – Norpedip – Fundo de Reest. Intern. Empresarial 575 000 4.99 4.99 2 868 1 332 Frie – Sulpedip – Fundo de Reest. Intern. Empresarial 575 000 4.99 4.99 2 868 540 Frie – Sulpedip – Retex 200 000 4.99 4.99 998 185 Fundo BPI – América 200 000 0.01 4.98 997 Fundo Grupo BFE Imobiliário 73 707 4.99 5.01 5.74 371 11 594 2 363 Other Atlântis – Incorporations Rights Issue 97 1 Banco BPI – Incorporation Rights 94 1 Oliva – Reduction Rights 100 0.44 Cimpor – Cim. Portugal – SGPS – Inc. rights Issue 99 1 Cofina SGPS – warrant (obrig. 98) 13 020 1.55 Fabricas Triunfo – Dir. reduçao Issue 2001 8 4.99 Soc. Construções Erg / 93 3 Somague – SGPS – Warrant (Obgs. 98) 115 015 0.35 Sonae Industria – SGPS – Inc. Rights Issue – 2nd 1 Variable-yield – Issued by foreign entities Shares Altitude Software 5 984 560 0.04 2.32 13 911 11 340 BPI Strategies, LTD. – Class B 5 000 0.01 953.56 974.13 4 768 Cis Corporation 39 512 4.49 4.67 0.24 155 145 European Investment Fund 6 1 000 000.00 1 000 000.00 6 000 Growela Cabo Verde 19 000 4.99 7.34 139 139 Liaoyang EFACEC 1 700 0.95 696.82 1 185 1 185 Multiwave 151 516 0.00 1.88 284 Parques Reunidos 304 140 0.25 5.19 2.35 1 580 865 Sofaris 13 49.55 94.75 1 Unirisco Galicia 80 1 202.00 1 202.03 96 28 119 13 674 Variable-yield – Issued by foreign entities Preference shares / Perp. Anglo Irish Cap Funding – Pref. Perp. – 7.75% 36 660 25.00 24.46 25.82 897 BBVA Cap Fund. Cayman – Pref. Perp. – 6.35% 52 800 51.13 44.99 44.50 2 376 26 BBVA International Ltd. – Pref. Perp. – 7% 50 000 100.00 98.43 100.00 4 922 BCH Eurocapital – Pref. B. – 97 / 2049 – Float. Rate 56 739 23.84 21.36 16.21 1 212 292 BCI Funding Acções Pref. Perp. 12 800 1 000.00 981.74 950.00 12 566 406 BES Overseas Sr. A. – Acções Pref. Perp. 917 400 23.84 23.60 22.89 21 651 656 Central Hispano Euroc. – Acç. Pref. S/ voto – A 200 000 23.84 24.29 23.55 4 858 148 Deutsche BK Cap Fund III – Pref. Perp. 6.6% 100 000 100.00 101.35 101.25 10 135 10 Erste Finance (Jersey) – 6.625% Pref. Perp. 101 820 25.00 23.11 23.00 2 353 12 Espirito Santo F. Group – Acções Pref. Perp. 5 000 511.29 509.25 462.72 2 546 233 K2 Corporation – Float. Rate – Pref. Perp. 5 000 953.56 953.56 953.55 4 768 68 284 1 783 Participating units Fundo BPI – Europa (Luxemburgo) 23 405 0.01 7.32 171 Fundo E Millenium 2 821 312 1.00 2 821 Scudder New Europe Fund Inc. 10 000 9.54 11.91 17.76 119 3 111
Consolidated financial statements | Notes 157 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Subordinated securities BNU – PTE / 1998 – Float Rate (15/10/2008) Sub. Cash Bond 947 716 004 0.01 0.01 0.01 9 477 293 9 477 293 Treasury stock Banco BPI 161 318 1.00 2.13 2.18 334 334 1 627 754 32 009 EQUITY INVESTMENTS Investments in associated companies Investments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Aquapor – Serviços, S.A. 323 400 5.00 35.78 11 572 502 Banc Post, S.A. 113 015 995 0.04 0.05 17 424 Caravela Gest, SGPS, S.A. 108 572 5.00 4.99 542 Companhia de Seguros Allianz Portugal, S.A. 2 768 178 5.00 15.06 37 734 Cosec – Companhia de Seguros de Crédito, S.A. 750 000 5.00 9.40 11 610 F.Turismo – Capital de Risco, S.A. 250 000 5.00 4.98 1 338 Finangeste – Emp. Financeira de Gestão e Desenvolvimento, S.A. 1 814 125 5.00 14.90 11 807 Telemanutenção – Assistência Remota e Computadores, S.A. 4 900 4.99 49.88 244 122 Vera Cruz Exportação – Indústria e Comércio, S.A. 689 145 0.27 0.81 558 558 Viacer – Sociedade Gestora de Participações Sociais, Lda. 54 446 783.25 15 314 108 143 1 182 Investments in subsidiary companies excluded from the consolidation Investments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002 BPI, Inc. 300 15.89 117 BPI Locação de Equipamentos, Lda. 150 000.00 BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 200 000 5.00 7.23 4 757 BPI Rent – Comércio e Aluguer de Bens, Lda. 2 492 286.55 4 596 BPI Strategies Ltd. 1 000 0.01 0.01 BPI Vida – Companhia de Seguros de Vida, S.A. 3 597 510 5.00 5.57 34 196 Douro – Sociedade Gestora de Participações Sociais, S.A. 3 580 088 5.00 3.48 3 797 Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. 30 000 5.00 3.54 470 Promática – Soc. Informação e de Organização de Empresas, S.A. 150 000 5.00 5.71 1 066 Simofer – Soc. de Empreendimentos Imobiliários e Construção Civil, Lda. 8 510.49 48 999 Other investments Investments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Other Portuguese financial entities SPGM – Sociedade de Investimentos, S.A. 1 936 300 1.00 1.00 1 932 Other Portuguese companies Alberto Gaspar, S.A. 60 000 4.99 4.99 299 107 Arco Bodegas Unidas 63 382 6.01 69.41 4 400 50 Barbosa & Almeida 1 090 493 5.00 14.71 16.48 16 039 Cofina SGPS 4 354 960 0.50 2.75 2.09 12 018 111 Conduril – Construtora Duriense, S.A. 184 262 5.00 4.37 4.50 805 Digitmarket – Sistemas de Informação, S.A. 742 500 1.00 1.00 764 718 EIA – Ensino, Investigação e Administração, S.A. 10 000 4.99 4.98 50 4 Ibersol – SGPS, S.A. 1 265 930 1.00 4.30 3.10 5 443 70 IES – A 266 000 4.99 4.99 1 327 Impresa – Sociedade Gestora de Participações Sociais, S.A. 7 380 687 1.00 10.25 1.94 61 265 3 776 International Factors Group 12 50.00 50.00 1 Mimalha, S.A. 40 557 4.99 8.27 336 336 NET – Novas Empresas e Tecnologias, S.A. 6 099 4.99 0.51 3 Pararede – SGPS, S.A. 4 811 910 0.40 1.44 0.20 6 951 3 053
158 Banco BPI | Annual Report 2002 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Other Portuguese companies (cont.) 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 4.98 1 303 Portugal Telecom, S.A. 20 743 391 1.00 10.75 6.11 223 197 6 298 Ricardo Gallo – Vidro de Embalagem, S.A. 39 600 5.00 7.27 288 72 SIBS – Sociedade Interbancária de Serviços, S.A. 738 455 5.00 4.22 3 115 SIC – Sociedade Independente de Comunicação, S.A. 997 657 4.99 194.45 145 281 7 784 Soc. Portuguesa de Inovação, Consultoria Empresarial e Fomento da Inovação, S.A. 8 580 5.00 4.98 43 1 Soset – Sociedade Desenvolvimento Regional Peninsula Setúbal, S.A. 68 000 4.99 4.99 339 175 Tagusparque – Sociedade 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 3.52 1 057 VAA – Vista Alegre Atlantis SGPS (Merge) 8 391 597 1.00 1.43 0.75 12 036 394 VAA – Vista Alegre Atlantis SGPS (St. Split.) 988 485 1.00 2.71 0.75 2 680 902 Vista Alegre Investimentos, SGPS, S.A. 1 025 4.99 4.99 5 Other foreign companies CLD – Credit Logement Developpment 100 15.24 15.25 1 Empresa Prestadora de Serviços aos Bancos 76 InterBancos 42 500 900.62 0.90 38 Nasdaq Europe SA / VN 100 250.31 25 21 Swift – Society for Worldwide Inf. Dev 5 123.95 1 234.51 6 Tharwa Finance (dirhams) 20 895 9.39 196 505 016 23 872 Investments excluded from the transitory regime established by the Bank of Portugal Notice 4 / 2002 Other Portuguese companies Plastrade – Com. Inter. Plásticos – S.A. 19 200 5.00 96 Other foreign companies Euronext 190 000 1.00 20.64 21 3 924 4 020 Other financial assets Guarantees 384 Subordinated loans 128 Supplementary capital contributions Plastrade 154 Shareholders' loan contracts Acesa 16 Auto Estradas do Atlântico 9 144 Caderno Verde 150 113 Caravela Gest SGPS, S.A. 1 354 Digitmarket – Sistemas de Informação, S.A. 879 GEIE – Gestão de Espaços de Incb. 10 IES – A 267 IES – B 401 InterBancos 224 Intersis 50 50 Maxstor – Suportes e Matrizes Informáticos, S.A. 957 957 Myplace 1 378 1 378 Sociedade Imobiliária Urbanização do Parque, S.A. 137 SVB SGPS, S.A. 2 301 ViaLitoral – Conc. Rodoviária da Madeira 975 18 243 2 498
Consolidated financial statements | Notes 159 Nominal Average Market Gross Nature of securities Quantity Value Cost Value Book value Provisions euro th. euro Other Investments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002 Ambelis – Agência p/ Modernização Economica de Lisboa, S.A. 400 49.88 49.88 20 Amsco – African Management Services Com 1 807 953.56 527.70 954 954 Apor – Agência p/ Modernização do Porto – Cl. B 2 400 4.99 4.99 12 Associação para Escola Gestão do Porto / 2000 2 24 939.89 50 4 Auto-Estradas Atlantico II – Conc. Serviços 1 000 5.00 5.00 5 Auto-Estradas Atlantico 1 100 000 5.00 4.98 5 487 Citeve – Cent. Tec. Ind. Tex. Vest. Portugal 20 498.80 10 Club Financiero Vigo 1 15 626.31 17 730.00 18 2 Coimbravita – Agência Desenvolvimento Regional 15 000 4.99 75 FIEP – Fundo para a Internacionalização das Empresas Portuguesas SGPS, S.A. 3 900 000 4.99 4.22 5.05 19 465 Frie Ipe Capital – Retex / Paiep 20 24 939.89 25 439.98 499 Frie – PME Capital – Retex 200 000 4.98 998 110 Fundo Inv. Capital de Risco – F. Turismo 43 24 939.89 25 222.90 1 084 196 Fundo Inv. Imobiliário Margueira Capital 2 949 761 4.99 14 713 Gestinsua – Aq. Al. Patrimonio 430 5.00 5.00 0.01 2 2 Margueira – Soc. Gestora de Fundos Investimento Imobiliário, S.A. 3 362 5.00 4.99 17 Parque Industrial da Matola – MZM 295 384 0.04 0.04 12 Parque Industrial da Matola – PTE 10 384 620 0.00 52 3 Porticentro – Sociedade de Construção, Gestão e Turismo, Lda. 100 100 Primus – Prom. e Desenvolvimento Regional, S.A. 8 000 4.99 4.99 40 17 Ricardo Gallo – Vidro de Embalagem, S.A. 100 100 5.00 0.79 793 Sanjimo – Sociedade Imobiliária 1 620 4.99 4.99 8 8 SIC – Sociedade Independente de Comunicação 585 Socera – Investimentos e Projectos 1 950 24.94 20.78 40 Sociedade Imobiliária Urbanização do Parque, S.A. 11 350 1.00 1.00 11 11 Spidouro – Sociedade Promoção e Investimento Douro e Tras-os-Montes 15 000 4.99 4.99 75 41 SUBLOC – Locação de submarinos, S.A. 2 500 10.00 10.00 25 Swift – Society for Worldwide Inf. Dev 57 123.95 235.02 41 ViaLitoral – Conc. Rodoviária da Madeira 4 750 161.25 166.64 791 80 Investments excluded from the transitory regime established by the Bank of Portugal Notice 4 / 2002 Auto-Estradas Atlantico 1 100 000 5.00 16.45 18 104 2 615 Auto-Estradas Atlantico II – Conc. Serviços 1 000 5.00 5.00 5 2 Fundo Inv. Imobiliário Margueira Cap. 130 730 4.99 4.99 652 Garval – Sociedade de Garantia Mutua 62 500 1.00 1.00 62 Margueira – Soc. Gestora de Fundos Investimento Imobiliário, S.A. 149 4.99 1 SDEM – Soc. de Desenvolvimento Empr. Madeira, SGPS 937 500 1.00 1.00 937 Sociedade Imobiliária Urbanização do Parque, S.A. 2 670 1.00 1.00 3 3 65 746 4 148 84 655 6 646 750 833 31 700
160 Banco BPI | Annual Report 2002 At 31 December, 2002, 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 Market Estimated Unrealised 4 5 Gross2 Deferred Provisions Net value Value Gain / Gains3 (Loss) Investments in associated companies Aquapor – Serviços, S.A. 11 572 502 11 070 4 818 (6 252) Caravela Gest, SGPS, S.A. 542 542 500 (42) Telemanutenção – Assistência Remota e Computadores, S.A. 244 122 122 100 (22) Viacer – Sociedade Gestora de Participações Sociais, S.A.1 15 314 15 314 130 000 114 686 Vera Cruz Exportação – Indústria e Comércio, S.A. 558 558 28 230 1 182 27 048 135 418 108 370 Other investments Alberto Gaspar, S.A. 299 107 192 192 Arco Bodegas Unidas 4 400 50 4 350 3 243 (1 107) Barbosa & Almeida 16 905 866 16 039 17 971 1 932 CLD – Credit Logement Developpment 2 2 3 1 Cofina SGPS 13 239 1 221 111 11 907 9 102 (2 805) Conduril – Construtora Duriense, S.A. 805 805 829 24 Digitmarket – Sistemas de Informação, S.A. 742 (22) 718 46 47 1 EIA – Ensino, Investigação e Administração, S.A. 50 4 46 (46) Empresa Prestadora de Serviços aos Bancos 76 76 76 Euronext 3 924 3 924 3 912 (12) Ibersol – SGPS, S.A. 5 475 32 70 5 373 3 924 (1 449) IES 2 815 1 488 1 327 2 051 724 Impresa – Sociedade Gestora de Participações Sociais, S.A. 75 653 14 388 3 776 57 489 14 319 (43 170) InterBancos 38 38 64 26 International Factors Group 1 1 (1) Mimalha, S.A. 336 336 Nasdaq Europe SA / VN 24 21 3 4 1 NET – Novas Empresas e Tecnologias, S.A. 3 3 42 39 Pararede – SGPS, S.A. 10 081 3 130 3 053 3 898 962 (2 936) Plastrade – Com. Intern. Plasticos – S.A. 96 96 144 48 PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 1 303 1 303 1 748 445 PME Investimentos – Sociedade de Investimentos S.A. 1 303 1 303 1 387 84 Portugal Telecom, S.A. 223 197 6 298 216 899 126 742 (90 157) Ricardo Gallo – Vidro de Embalagem, S.A. 288 72 216 216 SIBS – Sociedade Interbancária de Serviços, S.A. 3 115 3 115 11 253 8 138 SIC – Sociedade Independente de Comunicação, S.A. 193 997 48 716 7 784 137 497 45 643 (91 854) Soc. Port. Inovação, Consultoria Empresarial e Fomento Inovação, S.A. 43 1 42 27 (15) Soset – Sociedade Desenvolvimento Regional Peninsula Setúbal, S.A. 339 175 164 164 Swift – Society for Worldwide Inf. Dev 6 6 11 5 SPGM – Sociedade de Investimentos, S.A. – N 1 932 1 932 3 031 1 099 Tagusparque – Sociedade de Promoção e Desenvolvimento Parque, S.A. 2 394 2 394 8 252 5 858 Tharwa Finance (dirhams) 196 196 298 102 Unicre – Cartão Internacional de Crédito 1 421 364 1 057 5 841 4 784 VAA – Vista Alegre Atlantis SGPS (Merge) 11 259 (777) 394 11 642 6 294 (5 348) VAA – Vista Alegre Atlantis SGPS (St. Split.) 3 295 615 902 1 778 741 (1 037) Vista Alegre Investimentos, SGPS, S.A. 5 5 (5) 579 057 70 021 23 872 485 164 180 884 87 649 (216 631) 607 287 70 021 25 054 512 212 180 884 223 067 (108 261) 1) The investment in Viacer – Sociedade Gestora de Participações Sociais, S.A. is included within the BPI Group and therefore is recorded based on the equity method. 2) The gross book value corresponds to 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 for the purpose of its Public Tender Offer.
Consolidated financial statements | Notes 161 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:
2002 2001 2002 2001
Cash 152 525 166 217 Placements with central banks Demand deposits at the Bank of Portugal 310 569 283 359 Bank of Portugal Demand deposits at foreign central banks 61 012 57 150 Deposit certificates 186 638 273 044 524 106 506 726 Other 4 172 1 000 Foreign central banks 724 190 810 274 768 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 33 000 requirements of the European Central Bank System. These Other 100 087 123 182 deposits bear interest and correspond to 2% of the amount of 144 087 156 182 Customers’ deposits and debt securities maturing in up to 2 Placements with other credit institutions years, excluding deposits and debt securities of entities subject Domestic 619 878 425 257 Abroad 2 213 205 2 655 734 to the ECBS minimum cash reserves regime. 2 833 083 3 080 991 3 167 980 3 511 941 4.2. Loans and advances to Credit Institutions repayable on Loans and interest in arrears 100 019 119 334 demand Provisions for loans and interest in arrears (99 790) (118 928) This caption is made up as follows: Provisions for country risk (28) (27)
2002 2001 (99 818) (118 955) 3 168 181 3 512 320 Domestic credit institutions Demand deposits 30 869 24 469 Cheques for collection 180 631 223 888 The deposit certificates correspond to deposits at the Bank of Other 12 295 14 989 Credit institutions abroad Portugal, in dematerialised form, subscribed for in amounts Demand deposits 98 112 85 336 established by the Central Bank under the process of change in Cheques for collection 8 158 4 976 the regime of minimum cash reserves that came into force on Other 30 1 November, 1994. At 31 December, 2002 and 2001 these 330 065 353 688 certificates earned interest at annual rates of 3.28% and 3.76%, 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 the credit institutions, which in general do not remain in this Central Bank of a foreign country. account for more than one business day. The movement in the provisions during 2002 and 2001 is shown in note 4.27.
At 31 December, 2002 and 2001 this caption is made up as follows, by residual period to maturity:
2002 2001
Up to 3 months 2 510 173 2 731 412 From 3 months to 1 year 339 304 390 073 From 1 year to 5 years 300 385 362 176 More than 5 years 11 804 14 076 Undefined 6 314 14 204 3 167 980 3 511 941 Note: Does not include overdue loans and interest
162 Banco BPI | Annual Report 2002 4.4. Loans and advances to Customers This caption is made up as follows: The movement in the provisions during 2002 and 2001 is shown in note 4.27. 2002 2001
Short-term loans At 31 December, 2002 and 2001 this caption is made up as Domestic Discount 370 923 379 655 follows, by residual period to maturity: Loans and advances covered by notes 307 050 309 539 2002 2001 Credits in current accounts 2 709 102 1 622 006 Up to 3 months 2 416 919 1 985 142 Demand deposits – overdrafts 521 559 621 024 From 3 months to 1 year 2 266 076 1 746 317 Invoices received – factoring 305 682 300 283 From 1 year to 5 years 2 892 975 4 225 505 Other loans and advances 7 212 9 336 More than 5 years 8 393 941 6 814 123 Foreign 257 766 313 174 Undefined 391 255 525 512 4 479 294 3 555 017 16 361 166 15 296 599 Medium and long term loans Domestic Note: Does not include overdue loans and interest Discount 23 111 29 698 Loans Real estate 5 537 166 4 489 727 Others 4 228 502 3 920 983 Loans and advances covered by notes 15 186 17 856 Credits in current accounts 174 738 1 238 352 Other loans and advances 1 874 4 300 Foreign 884 484 1 011 604 10 865 061 10 712 520 Financial leasing 594 348 647 207 Real estate leasing 401 945 369 917 Subordinated loans 19 892 11 242 Placement of consigned resources 626 696 16 361 166 15 296 599 Loans and interest in arrears 254 028 174 414 Provisions for doubtful debts (21 383) (4 403) Provisions for loans and interest in arrears (120 077) (91 756) Provisions for country risk (1 142) (2 715) (142 602) (98 874) 16 472 592 15 372 139
Consolidated financial statements | Notes 163 4.5. Bonds and other fixed income securities This caption is made up as follows:
Book value Market value
2002 2001 2002 2001 A. Issued by government entities Listed securities Trading securities Bonds issued by Portuguese government entities Fixed rate 302 460 169 458 302 460 169 458 Bonds issued by foreign governments entities 1 081 566 897 826 1 081 566 897 826 Investment securities Bonds issued by Portuguese government entities Fixed rate 723 767 277 993 742 725 303 698 Floating rate 949 66 765 949 66 775 Bonds issued by foreign governments entities 36 307 57 473 37 385 59 848 Provisions for unrealised losses on securities (2) (22) 2 145 047 1 469 493 2 165 085 1 497 605 Unlisted securities Trading securities Bonds issued by foreign governments entities 509 Other securities issued by foreign government entities 426 Investment securities Bonds issued by foreign governments entities 47 885 0 48 820 2 145 047 1 518 313 B. Issued by other entities Listed securities Investment securities Bonds issued by other domestic entities 69 298 241 486 68 246 240 361 Bonds issued by international financial organisations 42 530 49 239 41 811 49 108 Bonds issued by other foreign entities 310 304 375 788 311 180 378 310 Subordinated debt securities 9 477 24 806 9 184 24 219 Provisions for unrealised losses on securities (4 836) (3 207) 426 773 688 112 430 421 691 998 Unlisted securities Trading securities Bonds issued by other foreign entities 574 541 Investment securities Bonds issued by other domestic entities 141 068 300 614 Bonds issued by international financial organisations 117 459 117 459 Bonds issued by other foreign entities 24 641 80 567 Provisions for unrealised losses on securities (346) (393) 283 396 498 788 Provisions for country risk (409) (409) Securities and interest in arrears 2 358 522 Provisions for securities and interest in arrears (341) (439) 2 017 83 711 777 1 186 574
At 31 December, 2002 and 2001 the investment portfolio At 31 December, 2002 and 2001 the bonds classified in the caption BONDS ISSUED BY OTHER DOMESTIC ENTITIES – UNLISTED investment portfolio correspond in part to bonds hedging includes th. euro 137 208 and th. euro 292 899, respectively, liabilities and off–balance sheet items. At 31 December, 2002 relating to commercial paper. At 31 December, 2002 and 2001 this portfolio corresponds in part to bonds hedged by off–balance the investment portfolio caption BONDS ISSUED BY OTHER FOREIGN sheet items.
ENTITIES – UNLISTED includes th. euro 19 833 and th. euro 56 725, respectively, relating to commercial paper. The movement in the provisions during 2002 and 2001 is shown in note 4.27.
164 Banco BPI | Annual Report 2002 4.6. Shares and other variable yield securities This caption is made up as follows:
Book value Market value
2002 2001 2002 2001 Listed securities Trading securities Shares 10 004 53 336 10 017 53 336 Participating units 462 1 489 462 1 490 Value fluctuations 13 1 Investment securities Shares 9 707 20 462 7 886 14 654 Preference shares 68 284 23 973 66 629 23 721 Other participating units 490 764 601 686 Other 53 Provisions for unrealised losses on securities (3 728) (6 227) 85 232 93 798 85 595 93 940 Unlisted securities Trading securities Shares 62 607 Investment securities Shares 58 924 57 454 Participating units in FRIEs 10 225 10 225 Other participating units 3 990 3 881 Provisions for unrealised losses on securities (71 278) (9 920) 64 468 61 640 149 700 155 438
The movement in the provisions during 2002 and 2001 is shown in note 4.27.
4.7. Investments in associated companies This caption is made up of investments in the following companies:
Effective participation (%) Book value (net)
2002 2001 2002 2001
Aquapor – Serviços, S.A.1 24.5 24.5 11 070 9 831 Banc Post, S.A. 17.0 17.0 17 424 17 915 Caravela Gest, SGPS, S.A. 16.7 16.7 542 542 Centro de Educação Integral, S.A.2 19.7 Companhia de Seguros Allianz Portugal, S.A. 35.0 35.0 37 734 38 819 Cosec – Companhia de Seguros de Crédito, S.A. 50.0 50.0 11 610 12 600 Digitmarket – Sistemas de Informação, S.A.3 25.0 641 F. Turismo – Capital de Risco, S.A. 25.0 25.0 1 338 1 311 Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 32.8 32.8 11 807 11 382 Solo – Investimentos em Comunicação, SGPS, S.A.4 45.0 21 Telemanutenção – Assistência Remota a Computadores, S.A. 22.8 22.8 122 122 Vera Cruz Exportação – Indústria e Comércio, S.A.5 20.9 20.9 Viacer – Sociedade Gestora de Participações Sociais, Lda. 26.0 26.0 15 314 12 191 106 961 105 375 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 sell it. 2) This investment was sold during 2002. At 31 December, 2001 this investment was fully provided for. 3) At 31 December, 2002 this investment is reflected in the investment portfolio caption OTHER INVESTMENTS because Banco BPI decreased its participating interest to 9.9% of the share capital of this company (note 4.9). 4) The BPI Group first acquired all the share capital of Solo – Investimentos em Comunicação, SGPS, S.A. and then sold 55% of the participation and issued a sale option in favour of the purchaser, covering all the share capital sold. During 2002, the sale option was exercised and the BPI Group’s participating interest in the share capital of Solo – Investimentos em Comunicações, SGPS, S.A. increased to 100%. Therefore, at 31 December, 2002 this investment was consolidated by the full consolidation method. 5) This investment is fully provided for.
Consolidated financial statements | Notes 165 The movement in the provisions during 2002 and 2001 is shown in note 4.27.
At 31 December, 2002 the balances relating to operations with associated companies were as follows:
Loans granted 1 Deposits 15 250 Creditors 1 Guarantees provided 391
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)
2002 2001 2002 2001 BPI, Inc. 100.0 100.0 117 128 BPI Locação de Equipamentos, Lda.1 100.0 100.0 BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 100.0 100.0 4 758 5 131 BPI Rent – Comércio e Aluguer de Bens, Lda. 100.0 100.0 4 596 4 279 BPI Strategies, Ltd. 100.0 100.0 BPI Vida – Companhia de Seguros de Vida, S.A. 100.0 100.0 34 196 34 934 Douro – Sociedade Gestora de Participações Sociais, S.A. 100.0 100.0 3 797 3 858 Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. 100.0 100.0 470 448 Promática – Sociedade de Informação e de Organização de Empresas, S.A. 100.0 100.0 1 065 1 042 Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda.2 100.0 100.0 48 999 49 820 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) The book value of this investment is nil, since the shareholders’ equity value is negative. According to BPI policies, the negative shareholders’ equity of the company is reflected in the caption ACCRUALS, DEFERRALS AND OTHERS (liabilities) (note 4.18). 2) 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, 2002 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: 2002 2001 Loans granted 134 396 Listed securities Deposits 9 449 Shares 341 678 436 155 Guarantees provided 15 266 Other 79 862 341 678 516 017 Unlisted securities Shares 167 358 162 375 Other 25 167 358 162 400 509 036 678 417 Provisions for unrealised losses on other investments (23 872) (6 468) 485 164 671 949
166 Banco BPI | Annual Report 2002 The movement in the provisions during 2002 and 2001 is shown in note 4.27. At 31 December, 2002 and 2001 this caption was made up as follows:
Effective participation (%) Book value (net)
2002 2001 2002 2001 Arco Bodegas Unidas 1.8 1.8 4 350 4 399 B.A. – Fábrica de Vidros Barbosa & Almeida, S.A. 14.5 14.5 16 039 16 039 Brisa – Autoestradas de Portugal, S.A.1 5.6 158 130 Cofina, SGPS, S.A. 8.7 8.7 11 907 12 018 Conduril – Construtora Duriense, S.A. 7.7 7.7 805 805 Euronext 0.2 3 924 Ibersol – SGPS, S.A. 6.3 6.3 5 373 5 444 IES – Indústria, Engenharia e Serviços, SGPS, S.A. 13.3 13.3 1 327 1 327 Impresa – Sociedade Gestora de Participações Sociais, S.A. 10.3 10.3 57 489 75 652 Pararede – SGPS, S.A. 3.8 9.3 3 898 5 296 PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 4.8 4.8 1 303 926 PME Investimentos – Sociedade de Investimentos, S.A. 4.8 4.8 1 303 926 Portugal Telecom, S.A. 1.7 1.7 216 899 223 197 SIBS – Sociedade Interbancária de Serviços, S.A. 15.0 15.0 3 115 3 115 SIC – Sociedade Independente de Comunicação, S.A. 19.9 14.7 137 497 142 774 Sonae, SGPS, S.A.1 0.0 573 S.P.G.M. – Sociedade de Investimentos, S.A. 15.5 16.2 1 932 2 017 Tagusparque, S.A. 11.0 11.0 2 394 2 394 Tharwa Finance 19.9 13.1 196 1 026 Unicre – Cartão Internacional de Crédito, S.A. 17.6 17.6 1 057 1 057 VAA – Vista Alegre Atlantis, SGPS, S.A. 16.6 16.4 13 420 13 813 Other 936 1 021 485 164 671 949 Note: This table shows all investments with a book value, net of provisions, over th. euro 500. 1) This investment was sold during 2002.
Consolidated financial statements | Notes 167 4.10. Intangible assets This caption is made up as follows:
Gross
Balances at Transfers Balances at 31-12-01 Additions Disposals and others 31-12-02 Leasehold rights 268 376 (66) 578 Start-up expenses 15 039 282 (803) (1 515) 13 003 Deferred costs 3 784 455 (298) (95) 3 846 Research and development expenses 19 906 2 406 22 312 Software 47 697 3 845 (1 348) 812 51 006 Other intangible assets 13 192 480 (626) 86 13 132 99 886 5 438 (3 075) 1 628 103 877 Work in progress 2 389 1 084 (3 231) 242 102 275 6 522 (3 075) (1 603) 104 119
4.11. Tangible fixed assets This caption is made up as follows:
Gross
Balances at Transfers Balances at 31-12-01 Additions Disposals and others 31-12-02 Premises Premises for own use 204 356 531 (217) (1 333) 203 337 Other premises 6 674 7 (2 196) 2 194 6 679 Leasehold improvements 85 588 546 (5 533) 1 659 82 260 Work in progress Premises for own use 2 336 2 459 (2 131) 2 664 Other premises 157 (157) Leasehold improvements 2 259 3 619 (2 788) 3 090 301 213 7 319 (7 946) (2 556) 298 030 Equipment Furnitures and fixtures 37 117 1 732 (965) (18) 37 866 Machinery and tools 14 868 524 (793) 193 14 792 Computer hardware 130 676 6 089 (12 758) (495) 123 512 Interior installations 56 793 3 013 (1 206) 5 860 64 460 Vehicles 20 191 2 172 (3 643) (331) 18 389 Security equipment 15 839 744 (418) 205 16 370 Other equipment 257 3 (1) (10) 249 275 741 14 277 (19 784) 5 404 275 638 Other fixed assets Art collections 1 856 149 (36) 1 969 Other leased assets 1 700 17 (40) 1 677 Others 15 279 62 (652) (354) 14 335 18 835 228 (652) (430) 17 981 Work in progress Equipment 2 364 10 448 (5 053) 7 759 Other fixed assets 123 17 (81) 59 Advances on account of fixed assets 20 927 1 526 (553) 21 900 23 414 11 991 (5 687) 29 718 619 203 33 815 (28 382) (3 269) 621 367
168 Banco BPI | Annual Report 2002 Amortisation Net
Balances at Amortisation Transfers Balances at Balances at Balances at 31-12-01 for the year Disposals and others 31-12-02 31-12-02 31-12-01 80 124 (80) 124 454 188 14 561 344 (803) (1 564) 12 538 465 478 3 228 420 (298) (21) 3 329 517 556 12 458 4 148 1 012 17 618 4 694 7 448 40 318 5 307 (1 348) (869) 43 408 7 598 7 379 10 775 1 492 (625) (29) 11 613 1 519 2 417 81 420 11 835 (3 074) (1 551) 88 630 15 247 18 466 242 2 389 81 420 11 835 (3 074) (1 551) 88 630 15 489 20 855
Depreciation Net
Balances at Depreciation Transfers Balances at Balances at Balances at 31-12-01 for the year Disposals and others 31-12-02 31-12-02 31-12-01
60 783 3 399 (14) (824) 63 344 139 993 143 573 1 583 106 (487) 648 1 850 4 829 5 091 46 945 6 546 (3 807) (163) 49 521 32 739 38 643
2 664 2 336
3 090 2 259 109 311 10 051 (4 308) (339) 114 715 183 315 191 902
24 914 2 614 (926) (24) 26 578 11 288 12 203 11 803 1 003 (792) 346 12 360 2 432 3 065 103 973 13 420 (12 733) (684) 103 976 19 536 26 703 35 522 3 776 (857) 1 436 39 877 24 583 21 271 11 317 3 918 (3 005) (233) 11 997 6 392 8 874 9 836 1 567 (359) 3 11 047 5 323 6 003 210 94 (1) (87) 216 33 47 197 575 26 392 (18 673) 757 206 051 69 587 78 166
1 969 1 856 441 646 (10) 1 077 600 1 259 7 608 1 274 (377) (58) 8 447 5 888 7 671 8 049 1 920 (377) (68) 9 524 8 457 10 786
7 759 2 364 59 123 21 900 20 927 29 718 23 414 314 935 38 363 (23 358) 350 330 290 291 077 304 268
Consolidated financial statements | Notes 169 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:
2002 2001 2002 2001
Gold, precious metals and coin collections 1 321 1 045 Accrued income Other available funds 83 4 596 From placements with credit institutions 9 366 13 115 Debtors From loans 67 879 71 283 Loan interest subsidy receivable 44 612 45 020 From securities 35 888 28 157 BPI Taxa Garantida advances 37 168 40 517 From foreign exchange and interest rate swaps 360 559 253 386 Loans ceded to Finangeste 7 515 14 725 Revaluation of Capital Seguro and Taxes recoverable 10 962 8 767 Risco Limitado bonds 72 860 1 005 Others 22 197 36 077 Others 41 537 34 254 Property received as settlement of defaulting loans 588 089 401 200 Real estate 35 002 32 825 Deferred costs Others 3 062 2 567 Debt securities 6 939 8 854 Margins on futures and options operations 1 857 2 143 Advertising campaigns 9 527 18 603 Other placements 17 187 552 Contributions to the pension funds 90 835 41 367 Other financial assets 84 655 113 430 Premiums on options relating to 265 621 302 264 Capital Seguro operations 61 676 94 436 Provisions for doubtful debtors (55) (21) Swaps operations 8 305 11 094 Provisions for property received as Other off-balance sheet operations 37 55 settlement of defaulting loans (7 238) (6 872) Others 9 408 10 534 Provisions for country risk (27 821) 186 727 184 943 Provisions for unrealised losses Valuation fluctuations on other financial assets (6 646) (2 626) Pension funds 120 390 71 179 (13 939) (37 340) Other 243 139 251 682 264 924 Other accounts Antecipated dividends on preference shares 9 568 17 046 Other financial assets owned by the BPI Group at 31 December, Stock exchange operations pending settlement 3 148 2002 are shown in note 3.2. Other operations pending settlement 45 593 53 575 Revaluation of options relating to The movement in the provisions during 2002 and 2001 is Capital Seguro operations 4 928 28 085 shown in note 4.27. Others 6 504 1 030 190 374 171 054 Other internal accounts (note 2.6) 11 652 965 190 768 849
At 31 December, 2002 and 2001 the deferred costs caption
ADVERTISING CAMPAIGNS results from the following:
2002 2001
Balance at beginning of the year 18 603 21 593 Expenses incurred during the year 3 809 10 050 Amortisation recorded during the year (12 885) (13 040) Balance at end of the year 9 527 18 603
170 Banco BPI | Annual Report 2002 At 31 December, 2002 and 2001 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): 2002 2001
2002 2001 Repayable on demand Excess coverage of pension funds 93 Domestic 31 133 29 839 Increase in the liability resulting Foreign 14 615 13 738 from early retirements 87 027 40 004 45 748 43 577 Losses resulting from differences between the Term or notice actuarial and financial assumptions used and the actual amounts (amount that exceeds the corridor) 65 1 270 Deposit securities sold to the Bank of Portugal, with repurchase option Losses from changes in the Term deposits of the Bank of Portugal 38 512 actuarial assumptions 2 204 0 38 512 Transfer from other Placements of other monetary institutions liabilities (debit balances) 1 539 Interbank money market 219 000 329 780 90 835 41 367 Term or notice deposits 278 401 185 078 Other 31 913 20 927 529 314 535 785 At 31 December, 2002 and 2001 the caption VALUATION Placements of other credit institutions FLUCTUATIONS / PENSION FUNDS corresponds to the actuarial losses Domestic relating to the coverage of the liability for retirement and survivor Term or notice deposits 13 851 576 pensions, resulting from the differences between the actuarial Other 5 9 and financial assumptions and the actual amounts (by the Foreign amount included in the corridor), in accordance with the International financial organisations 264 970 234 813 provisions of Bank of Portugal Notice 12 / 2001 of Term or notice deposits 3 211 722 3 772 371 23 November. Margins for hedging derivatives 216 283 150 760 Other 1 003 697 879 927
At 31 December, 2002 and 2001 the caption STOCK EXCHANGE 4 710 528 5 038 456
OPERATIONS PENDING SETTLEMENT corresponds to the net value of Short selling of securities 1 341 666 1 036 514 the operations on securities recorded from the date of the 6 581 508 6 649 267 6 627 256 6 692 844 transaction to the date of financial settlement established in the respective regulations (note 4.18). At 31 December, 2002 and 2001 the placements of other
The caption OTHER OPERATIONS PENDING SETTLEMENT at 31 foreign credit institutions include th. euro 391 896 and th. euro December, 2002 includes th. euro 14 306 relating to taxes 221 596, respectively, relating to placements in the off-shore under dispute, paid in accordance with Decree-Law 248 – branches of the Group Banks. A / 02 of 14 November. The term or notice amounts owed to Credit Institutions, by residual period to maturity, are as follows:
2002 2001
Up to 3 months 5 363 623 4 121 274 From 3 months to 1 year 1 807 713 From 1 to 5 years 525 290 554 779 More than 5 years 325 135 125 130 Undefined 367 460 40 371 6 581 508 6 649 267
Consolidated financial statements | Notes 171 4.15. Amounts owed to Customers 4.16. Debt securities This caption is made up as follows: This caption is made up as follows:
2002 2001 2002 2001
Savings deposits 868 361 833 304 Fixed rate cash bonds Other debts BPI 95 / Zero Coupon 5 544 5 544 Repayable on demand 4 922 142 4 706 046 BPI 96 – 1st Issue / Zero Coupon 2 032 2 032 Term or notice BPI 97 – 1st Issue / Zero Coupon 768 768 Deposits 6 434 065 5 954 955 BPI Fixed yield 2 years 4.00% 3 623 Loans 11 959 3 382 BPI Fixed yield 2 years 4.10% 500 4 808 Other liabilities BPI Fixed yield 3 years 3.10% 749 751 Cheques and orders payable 68 641 86 620 BPI Fixed yield 3 years 3.25% 6 828 Sales operations with repurchase BPI Fixed yield 3 years 3.40% 10 338 agreements – securities 441 198 BPI Fixed yield 3 years 3.50% 1 889 1 236 Funds obtained through futures and options 5 853 2 336 BPI Fixed yield 3 years 3.60% 39 690 Other 19 909 25 275 BPI Fixed yield 3 years 3.75% 1 696 6 540 427 6 513 766 BPI Fixed yield 3 years 3.85% 38 429 12 330 930 12 053 116 BPI Fixed yield 3 years 4.00% 38 095 25 636 BPI Fixed yield 3 years 4.10% 23 047 24 348 BPI Fixed yield 3 years 4.20% 16 434 17 082 At 31 December, 2002 and 2001, the caption AMOUNTS OWED TO BPI Fixed yield 3 years 4.25% 85 268 10 990 CUSTOMERS includes th. euro 779 956 and th. euro 418 269, BPI Fixed yield 3 years 4.40% 11 787 12 972 respectively, relating to deposits of investment funds managed BPI Fixed yield 3 years 4.65% 1 261 1 277 by the BPI Group, as well as deposits of BPI Vida (the company BPI Increasing fixed yield 3 years 21 539 22 733 that processes the capitalisation insurance products sold by the BPI Placement 4.1% 46 032 BPI Group). BPI Placement 4.1% – 2nd Issue 70 101 BPI Fixed yield 5 years 4.04% 750 The term or notice amounts owed to costumers, including saving BPI 20/02/2001-2006 4.28% 5 000 5 000 deposits, are made up as follows, by residual period to maturity: BPI Fixed yield 5 years 4.40% 866 911 BPI Fixed yield 5 years 4.50% 3 973 4 046 2002 2001 BBPI Cayman EMT 4% 28/05/2005 USD 39 979 Up to 3 months 4 062 898 4 309 802 BPI Cayman 08/03/2001 – 2007 4.25% 5 000 5 000 From 3 months to 1 year 2 538 029 2 578 998 BPI Fixed yield 2 years 4.2% 5 555 From 1 to 5 years 583 803 430 265 BPI Fixed yield 2 years 4.3% 6 495 More than 5 years 9 259 5 179 BPI Fixed yield 2 years 4.32% 500 Undefined 214 799 22 826 BPI Fixed yield 2 years 4.5% 3 880 7 408 788 7 347 070 BPI Fixed yield 2 years 4.7% 1 359 BPI Fixed yield 3 years 3.65% 67 908 BPI Fixed yield 5 years 4.1% 65 463 69 092 Variable rate cash bonds BFE 9th Issue – B Series 1 702 BBPI Cay USD 20/10/2010 Series 1 19 071 BBPI Cay USD 20/10/2010 Series 2 28 607 BPI Cayman 26/02/2001-2003 100 000 100 000 BBPI Cayman EMT 15/11/2005 15 000 BBPI Cayman EMT 15/11/2005 FUNG 7 500 BPI Cayman 18/03/2002-2005 400 000 BPI Cayman 09/02/2001-2004 400 000 400 000 BPI Cayman 28/07/2000-2003 300 000 300 000 BPI Cayman EMT 30/05/2006 10 000 BPI Cayman 01/03/2001-2006 15 000 15 000 BPI Cayman 03/05/2001-2006 600 000 600 000
172 Banco BPI | Annual Report 2002 2002 2001 2002 2001
Variable-yield cash bonds1 Variable-yield cash bonds (cont.)1 BPI Capital Seguro 10 Uncommon Values USD / 2000 3 566 5 483 BPI Risco Limitado 10 Uncommon Values USD / 2000 3 390 BPI Capital Seguro Biotecnologia USD / 2000 4 796 6 438 BPI Risco Limitado Sector Biotecnologia USD / 2000 8 375 8 475 BPI Capital Seguro Cinco Mais 2002 19 766 BPI Risco Limitado Sector Comunicações Móveis USD / 2000 2 109 BPI Capital Seguro Comunicações Móveis EUR / 2000 2nd Issue 49 470 48 780 BPI Risco Limitado Comunicações Móveis USD / 2000 20 341 35 065 BPI Capital Seguro Comunicações Móveis EUR / 2000 3rd Issue 54 029 53 457 BPI Risco Limitado Euro PT 2000 – 2nd Issue 1 460 5 000 BPI Capital Seguro Comunicações Móveis BPI Risco Limitado Portugal Telecom 2002 9 164 EUR / 2000 4th Issue 50 813 50 688 BPI Risco Limitado Eurostoxx 50 2005 2 980 2 980 BPI Capital Seguro Comunicações Móveis EUR / 2000 49 212 48 506 BPI Risco Limitado Euro Telefonica 2000 4 610 6 002 BPI Capital Seguro Comunicações Móveis USD / 2000 5 406 10 697 BPI Risco Limitado Sector Internet USD / 2000 4 520 BPI Capital Seguro Directo 2001 1 268 1 312 BPI Risco Limitado Sector Nasdaq-100 USD / 2000 4 520 BPI Capital Seguro Euro BPI 2000-2003 2 500 2 500 BPI Risco Limitado Portugal Telecom 2001 6 500 5 000 BPI Capital Seguro Euro Imobiliário 2002-2007 5 860 BPI Risco Limitado PT 2001 1 500 BPI Capital Seguro Eurostoxx 50 2005 1 490 1 935 BPI Risco Limitado Portugal Telecom 2002-2004 2 500 BPI Capital Seguro Eurostoxx 50 / 2008 2 500 2 500 BPI Risco Limitado Tecnologia 2001 7 140 7 444 BPI Capital Seguro Healthcare 2001-2006 5 203 5 300 BFB Capital Seguro Europa – 100 / 98 33 750 36 995 BPI Capital Seguro Healthcare 2006 – 2nd Issue 2 498 2 500 BFB Capital Seguro França / 98 16 117 18 123 BPI Capital Seguro Euro Imobiliário 2002-2007 42 700 BFB Capital Seguro Itália / 98 16 563 16 316 BPI Capital Seguro Índices Mundiais 2001 38 880 40 153 BFB Capital Seguro Japão / 98 26 922 25 405 BPI Capital Seguro Internet Euro / 99 32 778 32 325 BFB Capital Seguro Portugal / 98 81 063 78 224 BPI Capital Seguro Internet Euro / 99 – 2nd Issue 14 632 14 753 BFB Risco Limitado Europa & América / 98 337 1 506 BPI Capital Seguro Internet USD / 99 3 711 5 395 BPI Cayman 18/11/2001-2005 7 500 30 000 BPI Capital Seguro PTNC 2004 4 285 4 325 BPI Cayman 18/10/2001-2006 63 525 63 525 BPI Capital Seguro Quattro 2004 25 047 26 581 BPI Risco PT 2000-2002 2 750 BPI Capital Seguro Rendimento Máximo 27.5% BFB Capital Seguro Espanha / 97 4 001 2002-2005 24 250 BFE Capital Seguro Alemanha / 97 9 713 BPI Capital Seguro Rendimento Máximo 25% 2002-2005 5 583 BFE Capital Seguro América do Sul / 97 20 284 BPI Capital Seguro Rendimento Máximo 5% 2002 38 640 BFB Risco Limitado Portugal / 97 4 112 BPI Capital Seguro Rendimento Euribor 5.75% 2001 37 638 39 669 BFB Risco Limitado Europa-100 / 97 10 645 BBPI CS REVERSE LIBOR USD 2002-07 38 142 BPI Risco Limitado Euro PT 2000 16 905 BPI Capital Seguro Selecção Europa 2003 – 2nd Issue 27 470 27 492 BPI Euro PT – 1999 – 1st and 2nd Issue 11 488 BPI Capital Seguro Selecção Europa 2003 – 1st Issue 30 605 29 992 BPI Capital Seguro Zona Euro 2002 12 577 BPI Capital Seguro Zona Euro 2006 – 2nd Issue 22 796 24 153 BPI Capital Seguro Eurostoxx 50 / 2000 2 867 BPI Capital Seguro Zona Euro 2005 2nd Issue 44 547 47 245 BPI Capital Seguro Empresas Internacionais / 1999 30 044 BPI Capital Seguro Zona Euro 2007 29 548 30 608 BPI Capital Seguro Bolsas Mundiais / 1999 42 377 BPI Capital Seguro Zona Euro 2006 24 673 24 798 3 541 429 3 121 750 BPI Capital Seguro Zona Euro 2003 47 724 49 444 1) The BPI Group has options to hedge the risk resulting from cost variations associated with these bonds. BPI Capital Seguro Eurostoxx 50 / 2003 7 500 7 500 BBPI Cash Bonds INFL Z Euro 2002 / 2012 10 000 BPI Capital Seguro Rendimento Máximo 27.5% 2001-2004 7 659 7 861 BPI Capital Seguro Brasil / 99 1 578 1 826 BPI Capital Seguro Eurostoxx 50 / 2007 8 940 9 627 BPI Capital Seguro Eurostoxx 50 2001-2004 650 1 150 BPI Capital Seguro Multinacionais / 1999 43 841 45 895 BPI Capital Seguro Portugal / 1999 11 998 12 723 BPI Capital Seguro Zona Euro 2004 19 613 19 571 BPI Risco Limitado Biotecnologia USD / 2000 13 571 BPI Risco Limitado Sector 10 Uncommon Values USD / 2000 3 051 8 377
Consolidated financial statements | Notes 173 At 31 December, 2002 the conditions of these securities were as follows:
Interest rate Nominal Value Remuneration as of 31.12.02 Maturity date (%) Fixed rate cash bonds BPI 95 / Zero Coupon 5 544 Difference between the redemption December, 2003 value and the issue price (th. euro 2 494) BPI 96 – 1st Issue / Zero Coupon 2 032 Difference between the redemption April, 2003 value and the issue price (th. euro 998) BPI 97 – 1st Issue / Zero Coupon 768 Difference between the redemption November, 2005 value and the issue price (th. euro 499) BPI Fixed yield – 2 years 4.% (2 issues) 3 698 Fixed rate of 4.0% 4.0 Between March, 2004 and April, 2003 BPI Fixed yield – 5 years 4.1% (3 issues) 75 150 Fixed rate of 4.1% 4.1 October, 2004 BPI Fixed yield – 3 years 4.1% (3 issues) 26 058 Fixed rate of 4.1% 4.1 Between February, 2003 and September, 2004 BPI Fixed yield – 5 years 4.5% (2 issues) 4 182 Fixed rate of 4.5% 4.5 February, 2005 BPI Fixed yield – 3 years 4.0% (10 issues) 41 553 Fixed rate of 4.0% 4.0 Between March, 2003 and August, 2005 BPI Fixed yield – 5 years 4.4% (2 issues) 937 Fixed rate of 4.4% 4.4 March, 2005 BPI Fixed yield – 3 years 4.2% (4 issues) 18 291 Fixed rate of 4.2% 4.2 Between May, 2003 and February, 2004 BPI Fixed yield – 3 years 4.25% (17 issues) 87 722 Fixed rate of 4.25% 4.25 Between February and August, 2005 BPI Fixed yield – 2 years 4.1% 500 Fixed rate of 4.1% 4.1 April, 2004 BPI Fixed yield – 3 years 3.6% (2 issues) 40 165 Fixed rate of 3.6% 3.6 October, 2005 BPI Fixed yield – 3 years 4.65% 1 377 Fixed rate of 4.65% 4.65 January, 2003 BPI Fixed yield – 3 years 3.85% (2 issues) 38 762 Fixed rate of 3.85% 3.85 September, 2005 BPI Fixed yield – 3 years 4.4% (2 issues) 13 468 Fixed rate of 4.4% 4.4 Between July, 2003 and August, 2003 BPI Fixed yield – 3 years 3.4% (2 issues) 10 894 Fixed rate of 3.4% 3.4 November, 2005 BPI Increasing Fixed yield (8 issues) 23 895 Fixed rate of 4.0% (2001), 4.5% (2002) 5.5 Between September and and 5.5% (2003) December, 2003 BPI Fixed yield – 7 years 4.04% 750 Fixed rate of 4.04% 4.04 October, 2009 BPI 2006 5 000 Fixed rate of 4.28% 4.28 August, 2006 BPI Cayman 2007 5 000 Fixed rate of 4.25% 4.25 August, 2007 BPI Fixed yield – 3 years 3.5% (2 issues) 1 935 Fixed rate of 3.5% 3.5 Between November, 2004 and February, 2005 BPI Fixed yield – 3 years 3.1% 751 Fixed rate of 3.1% 3.1 December, 2004 BPI Fixed yield – 3 years 3.25% (3 issues) 6 959 Fixed rate of 3.25% 3.25 Between January, 2005 and December, 2005 BPI Fixed yield – 3 years 3.75% 1 730 Fixed rate of 3.75% 3.75 March, 2005 BPI Cayman USD 28/05/02-2005 4% 41 045 Fixed rate of 4% 4.0 May, 2005 (USD 43 044 000) Variable rate cash bonds BPI Cayman 28/07/2000-2003 300 000 Indexed to the 3 month Euribor rate 3.577 July, 2003 BPI Cayman 09/02/2001-2004 400 000 Indexed to the 3 month Euribor rate 3.564 February, 2004 BPI Cayman 26/02/2001-2003 100 000 Indexed to the 3 month Euribor rate 3.588 June, 2003 BPI Cayman 01/03/2001-2006 15 000 Indexed to the 3 month Euribor rate 3.604 April, 2006 BPI Cayman 03/05/2001-2006 600 000 Indexed to the 3 month Euribor rate 3.61 May, 2006 BPI Cayman EMT 30/05/2006 10 000 Indexed to the 6 month Euribor rate 3.594 May, 2006 BPI Cayman EMT 15/11/2005 22 500 Indexed to the 3 month Euribor rate 4.8 November, 2005 BPI Cayman 18/03/2002-2005 400 000 Indexed to the 3 month Euribor rate 3.092 March, 2005 BPI Cayman USD 20/10/2010 (2 issues) 47 678 Indexed to USD – Libor – BBA 1.62105 October, 2010 (USD 50 000 000) Variable yield cash bonds BFB Risco Limitado Europa & América / 98 4 988 Linked to the BPI Europa & América Index. The lower January, 2003 and upper limits are -4.99 euro and 34.92 euro, respectively BFB Capital Seguro Europa & América / 98 2 494 Linked to the BPI Europa & América Index. January, 2003 The lower and upper limits are zero and 80%
174 Banco BPI | Annual Report 2002 Interest rate Nominal Value Remuneration as of 31.12.02 Maturity date (%) Variable yield cash bonds (cont.) BFB Capital Seguro Europa – 100 / 98 109 736 Linked to the FTSE Eurotop-100 Index. The lower February, 2003 and upper limits are zero and 34.92 euro, respectively BFB Capital Seguro Japão / 98 34 916 Linked to the NIKKEI 225 Index. The lower and March, 2003 upper limits are zero and 39.90 euro, respectively BFB Capital Seguro Portugal / 98 124 699 Linked to the PSI-20 Index. The lower and upper March, 2003 limits are zero and 27.43 euro, respectively BFB Capital Seguro Itália / 98 39 904 Linked to the MIB30 Index. The lower and upper April, 2003 limits are zero and 24.94 euro, respectively BFB Capital Seguro França / 98 50 129 Linked to the CAC 40 Index. The lower and upper May, 2003 limits are zero and 24.94 euro, respectively BPI Capital Seguro Portugal / 1999 15 000 Linked to the PSI-20 Index. The lower April, 2004 limit is zero per bond BPI Capital Seguro Multinacionais / 1999 50 000 Linked to an index composed by a basket of shares June, 2004 of multinational companies listed on International Stock Exchanges. The lower limit is zero per bond BPI Capital Seguro Brasil / 99 7 500 25% of the nominal value on the maturity date or July, 2004 zero if there is any non-compliance of conditions by the Federal Republic of Brazil BPI Capital Seguro Zona Euro 2004 25 000 Linked to the DJ Eurostoxx 50 Price Index. The July, 2004 lower limit is zero per bond BPI Capital Seguro Zona Euro 2007 39 500 Linked to the DJ Eurostoxx 50 Price Index. The August, 2007 lower limit is 0.16 euro per bond BPI Capital Seguro Internet USD / 99 24 793 Linked to the DJ Internet Composite Index. The October, 2004 (USD 26 000 000) lower limit is zero per bond BPI Capital Seguro Internet Euro / 99 35 000 Linked to the DJ Internet Composite Index. The November, 2004 lower limit is zero per bond BPI Capital Seguro Internet Euro / 99 15 000 Linked to the DJ Internet Composite Index. The November, 2004 – 2nd Issue lower limit is zero per bond BPI Risco Limitado Comunicações Móveis 31 229 Linked to the BPI Comunicações Móveis Index. The January, 2005 USD / 2000 (USD 32 750 000) lower limit is USD -0.1 per bond BPI Capital Seguro Comunicações Móveis 12 635 Linked to the BPI Comunicações Móveis Index. The January, 2005 USD / 2000 (USD 13 250 000) lower limit is zero per bond BPI Capital Seguro Comunicações Móveis 50 250 Linked to the BPI Comunicações Móveis Index. The February, 2005 EUR / 2000 lower limit is zero per bond BPI Capital Seguro Comunicações Móveis 50 750 Linked to the BPI Comunicações Móveis Index (2nd Issue). March, 2005 EUR / 2000 – 2nd Issue The lower limit is zero per bond BPI Risco Limitado Sector Nasdaq-100 3 814 Linked to the Nasdaq-100 Index. The lower limit is March, 2005 USD / 2000 (USD 4 000 000) USD -0.1 per bond BPI Risco Limitado Sector Comunicações 3 814 Linked to the BPI Comunicações Móveis Index. The March, 2003 Móveis USD / 2000 (USD 4 000 000) lower limit is USD -0.1 per bond BPI Risco Limitado Sector Internet 3 814 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 BPI Risco Limitado Sector 10 Uncommon 2 861 Linked to the 10 Uncommon Values Index. The March, 2005 Values USD / 2000 (USD 3 000 000) lower limit is USD -0.1 per bond BPI Risco Limitado Sector Biotecnologia 7 152 Linked to the Amex Biotechnology Index. The lower March, 2005 USD / 2000 (USD 7 500 000) limit is USD -0.1 per bond BPI Capital Seguro Comunicações Móveis 55 200 Linked to the BPI Comunicações Móveis Index (3rd March, 2005 EUR / 2000 – 3rd Issue Issue). The lower limit is zero per bond BPI Capital Seguro Biotecnologia 7 724 Linked to the Amex Biotechnology Index. The lower March, 2005 USD / 2000 (USD 8 100 000) limit is zero per bond BPI Risco Limitado Biotecnologia 21 646 Linked to the Amex Biotechnology Index. The lower March, 2005 USD / 2000 (USD 22 700 000) limit is USD -0.1 per bond BPI Risco Limitado 10 Uncommon Values 8 487 Linked to the 10 Uncommon Values Index. The April, 2005 USD / 2000 (USD 8 900 000) lower limit is USD -0.1 per bond BPI Capital Seguro Comunicações Móveis 51 250 Linked to the BPI Comunicações Móveis Index (4th April, 2005 EUR / 2000 – 4th Issue Issue). The lower limit is zero per bond BPI Capital Seguro 10 Uncommon Values 5 840 Linked to the 10 Uncommon Values Index. The April, 2005 USD / 2000 (USD 6 125 000) lower limit is zero per bond BPI Capital Seguro Zona Euro 2005 50 000 Linked to the Dow Jones Eurostoxx 50 Price Index. June, 2005 – 2nd Issue The lower limit is zero per bond
Consolidated financial statements | Notes 175 Interest rate Nominal Value Remuneration as of 31.12.02 Maturity date (%) Variable yield cash bonds (cont.) BPI Capital Seguro Eurostoxx 50 / 2008 2 500 Linked to the Dow Jones Eurostoxx 50 Price Index. July, 2008 The lower limit is 0.05 euro per bond BPI Risco Limitado Euro Telefonica 2000 10 520 Linked to the valuation of the Telefonica shares on July, 2003 the Madrid Stock Exchange. The lower and upper limits are -0.73 euro and 0.27 euro, per bond BPI Risco Limitado Eurostoxx 50 2005 3 000 Linked to the Dow Jones Eurostoxx 50 Price Index. August, 2005 The lower limit is -0.1 euro per bond BPI Capital Seguro Eurostoxx 50 2005 2 125 Linked to the Dow Jones Eurostoxx 50 Price Index. August, 2005 The lower limit is zero per bond BPI Capital Seguro Selecção Europa 2003 31 154 Linked to the 10 Uncommon Values Index. The August, 2003 lower limit is zero per bond BPI Capital Seguro Selecção Europa 2003 28 085 Linked to the 10 Uncommon Values Index. The September, 2003 – 2nd Issue lower limit is zero per bond BPI Capital Seguro Zona Euro 2003 50 000 Linked to the Dow Jones Eurostoxx 50 Price Index. October, 2003 The lower limit is 9 euro per bond BPI Capital Seguro Euro BPI 2000-2003 2 500 Linked to the valuation of Banco BPI shares on the Euronext. December, 2003 The lower and upper limits are zero and 16.5 per bond BPI Risco Limitado Euro PT 2000 5 000 Linked to the valuation of Portugal Telecom shares on the Euronext. January, 2003 – 2nd Issue The lower and upper limits are -80 euro and 20 euro, per bond BPI Capital Seguro Eurostoxx 50 / 2003 7 500 Linked to the Dow Jones Eurostoxx 50 Price Index. The lower April, 2003 and upper limits are zero and 16 euro per bond BPI Capital Seguro Eurostoxx 50 2001-2007 10 000 Linked to the Dow Jones Eurostoxx 50 Price Index. April, 2007 The lower limit is zero per bond BPI Capital Seguro Índices Mundiais 2001 50 000 Linked to the Nikkei 225, FTSE 100, Dow Jones March, 2006 Eurostoxx 50, Nasdaq-100 and S&P 500 Price Index. The lower limit is zero per bond BPI Capital Seguro Rendimento Euribor 40 000 Indexed to the 1 year Euribor rate March, 2004 5.75% 2001 BPI Risco Limitado Portugal Telecom 2001 5 000 Linked to the valuation of Portugal Telecom shares March, 2003 and to the three month Euribor rate BPI Risco Limitado Tecnologia 2001 7 450 Linked to the Nasdaq-100 Index. The lower and April, 2003 upper limits are -70 and 20 euro per bond BPI Risco Limitado PT 2001 6 500 Linked to the valuation of Portugal Telecom shares. April, 2003 The lower limit is 20 euro per bond BPI Capital Seguro Zona Euro 2006 25 000 Linked to the Dow Jones Eurostoxx 50 Price Index. May, 2006 The lower and upper limits are -80 and 20 euro per bond. BPI Capital Seguro PTNC 2004 4 325 Linked to the valuation of Portugal Telecom, May, 2004 Telefonica, Nokia and Cisco shares. The lower and upper limits are 9 and 22 euro per bond BPI Capital Seguro Zona Euro 2006 – 2nd Issue 25 000 Linked to the Dow Jones Eurostoxx 50 Price Index. June, 2006 The lower limit is 10 euro per bond BPI Capital Seguro Quattro 2004 27 100 Linked to the valuation of Portugal Telecom, June, 2004 Telefonica, Nokia and Cisco shares. The lower and upper limits are 6 and 25 euro per bond BPI Capital Seguro Rendimento Máximo 8 000 Linked to the valuation of Portugal Telecom, July, 2004 27.5% 2001-2004 Telefonica, Axa and Bayer shares. The lower and upper limits are 6 and 27.5 euro per bond BPI Capital Seguro Directo 2001 2 500 Linked to the valuation of Portugal Telecom, December, 2004 Telefonica, Nokia and Cisco shares. The lower and upper limits are 6 and 20 euro per bond BPI Capital Seguro Healthcare 2001-2006 5 300 Linked to the Dow Jones Healthcare Price Index. December, 2006 The lower limit is zero per bond BPI Capital Seguro Healthcare 2006 – 2nd Issue 2 500 Linked to the Dow Jones Europe Stoxx Healthcare December, 2006 Price Index. The lower limit is zero per bond BPI Capital Seguro Eurostoxx 50 2001-2004 1 150 Linked to the Dow Jones Eurostoxx 50 Price Index. December, 2004 The lower limit is 3 euro per bond BPI Cayman 2006 63 525 Linked to a basket of indexes October, 2006 BPI Cayman 2005 7 500 Linked to a basket of Dow Jones indexes November, 2005 BPI Cayman 2007 38 142 Fixed rate of 5.4% until 25 November, 2003 and November, 2007 (USD 40 000 000) thereafter linked to the 12 month USD Libor rate
176 Banco BPI | Annual Report 2002 Interest rate Nominal Value Remuneration as of 31.12.02 Maturity date (%) Variable yield cash bonds (cont.) BPI Capital Seguro Imobiliário 2002 50 000 Linked to the European Public Real Estate Index. June, 2007 The lower limit is 10 euro per bond BPI Capital Seguro Euro Imobiliário 6 000 Linked to the European Public Real Estate Index. May, 2007 2002-2007 The lower limit is 8 euro per bond BPI Capital Seguro Cinco Mais 2002 25 000 Linked to the valuation of Endesa, JP Morgan June, 2007 Chase, Nestlé, Portugal Telecom and Royal Dutch Petroleum shares. The lower limit is zero per bond. BPI Risco Limitado Portugal Telecom 2002 2 500 Linked to the valuation of Portugal Telecom shares March, 2004 BPI 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 BPI Capital Seguro Rendimento Máximo 5% 2002 39 600 Indexed to the 6 month USD Libor rate March, 2005 BPI Capital Seguro Rendimento Máximo 25% 5 750 Linked to the valuation of Acesa, Aegon NV, Bayer March, 2005 2002-2005 and British American Tobacco shares BPI Inflação Zona Euro 10 000 Linked to the HICP Index (Euro harmonized October, 2012 consumer index price, excluding tobacco) BPI Capital Seguro Rendimento Máximo 25 000 Linked to the valuation of Intel, AT&T, Hewlett- May, 2005 27.5% 2002-2005 -Packard and Deutsche Telekom shares
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:
2002 2001 2002 2001
Creditors Accrued expenses Suppliers 8 840 26 194 On funds from credit institutions 35 208 57 462 Creditors for factoring contracts 11 544 14 496 On deposits 61 889 61 163 Other creditors 145 579 102 384 On debt securities 41 072 36 498 Other liabilities Administrative costs State administrative sector Variable personnel costs 27 314 27 141 Income tax 7 713 38 983 Other 41 820 42 963 Taxes withheld at source 12 709 13 468 On foreign-exchange and interest rate swaps 207 914 132 595 Other 8 056 3 450 Revaluation of Capital Seguro and Contributions to the pension funds 48 3 230 Risco Limitado bonds 86 223 21 820 Others 3 608 4 485 Other 9 312 19 177 198 097 206 690 510 752 398 819 Deferred income
At 31 December, 2002 and 2001 the caption OTHER CREDITORS On securities issued at a discount 7 547 18 278 includes th. euro 35 894 and th. euro 39 707, respectively, Pension funds 655 758 relating to collections from Customers of Banco de Fomento, Premiums on options sold relating to Capital Seguro operations 1 739 5 578 S.A.R.L. (Angola) and of Banco BPI’s Luanda Branch, which are Swaps operations 16 886 20 614 awaiting authorisation from the National Bank of Angola for the Other off-balance sheet operations 2 698 2 609 issue of the payment order. Other 14 376 9 450 43 901 57 287 Value fluctuations 13 10 Other accounts Stock exchange operations pending settlement 152 21 461 Operations pending settlement 57 889 63 528 Revaluation of options relating to Capital Seguro operations 11 820 10 055 Corporate income tax – payments on account 7 011 733 Other 10 602 70 277 87 474 166 054 Other internal accounts (Nota 2.6) 61 526 703 666 622 170
Consolidated financial statements | Notes 177 The caption OTHER DEFERRED INCOME at 31 December, 2002, This liability is being expensed through a plan of uniform annual includes th. euro 6 309 relating to the purchase of Fundo EFTA. instalments at a rate of 7% over the remaining service lives of the This amount results from credits owned by the Fund that were individuals covered. At 31 December, 2002 and 2001 the bought by BPI at below their nominal value. caption PROVISIONS FOR RETIREMENT BENEFITS includes th. euro 8 786 and th. euro 5 480, respectively, to cover this liability.
At 31 December, 2002 and 2001 the caption SECURITIES
OPERATIONS PENDING SETTLEMENT corresponds to the net value of At 31 December, 2002 and 2001 the caption PROVISIONS FOR the operations on securities recorded from the date of the RETIREMENT BENEFITS also includes th. euro 5 755 and th. euro transaction to the date of financial settlement established in the 3 962, respectively, relating to the past service liability of respective regulations (note 4.13). Employees of the Madrid Branch of Banco BPI, the Employees of Banco Fomento, S.A.R.L. (Mozambique) and the Employees of
At 31 December, 2001 the caption OTHER ACCOUNTS includes Banco Fomento S.A.R.L. (Angola). th. euro 63 104 relating to the gain on the sale of 30% of the share capital of IMC – Investimentos, Média e Conteúdos, SGPS, The movement in the provisions during 2002 and 2001 is shown S.A (IMC). This gain has been deferred as the BPI Group has in note 4.27. acquired the investments previously held by IMC in Impresa – Sociedade Gestora de Participações Sociais, S.A. (Impresa) and 4.20. Liabilities for retirement and survivor pensions SIC – Sociedade Independente de Comunicação, S.A. (SIC). The The past service liability relating to pensioners and current amounts to be considered in determining the results of an Employees that are, or have been, Employees of BPI Group eventual sale of the investments in Impresa and SIC are th. euro companies1, and which is covered by Pension Funds, is 14 388 and th. euro 48 716, respectively (note 3.2). At 31 calculated in accordance with the requirements of Bank of December, 2002 these amounts have been deducted from the Portugal Notice 12 / 2001 of 23 November, with the changes cost of the investments in Impresa and SIC (note 3.2). introduced by Bank of Portugal Notice 7 / 2002 of 31 December.
4.19. Provisions for sundry risks and fund for general banking BPI Pensões is the entity responsible for the actuarial risks calculations necessary to determine the amount of the retirement These captions are made up as follows: and survivor pension liability, as well as to manage the respective Pension Funds. 2002 2001
Provisions for retirement benefits 14 541 9 442 The "Projected Unit Credit" method was used to calculate the Other provisions (note 2.10) normal cost and the past service liability due to age and the For general credit risks 188 397 180 896 Single Successive Premiums are used for the calculation of the For other risks 12 042 54 680 200 439 235 576 cost of the incapacity and survivor benefits. Fund for general banking risks (note 2.11) 5 059 6 658 220 039 251 676
The members of the executive board of Banco BPI, S.A., as well as the board members of BPI Investimentos are entitled to retirement and survivor pensions. The present value of the past service liability of the pension plan at 31 December, 2002 and 2001 amounts to th. euro 12 208 and th. euro 10 478, respectively.
1) Companies consolidated by full consolidation method (At 31 December, 2001: BPI SGPS, BPI Investimentos, Banco BPI, BPI Dealer, BPI Factor, BPI Fundos and BPI Leasing; at 31 December, 2002: Banco BPI, BPI Investimentos, BPI Fundos and Inter-Risco).
178 Banco BPI | Annual Report 2002 The main actuarial and financial assumptions used to calculate which, following Bank of Portugal agreement, will be recognised the liability for pensions are as follows: in the balance sheet and funded in accordance with a plan of equal annual instalments over a maximum period of 20 years as Assumptions Used from the year 2002 (note 4.28). 2002 2001
Mortality Table TV – 73 / 77 - - At 31 December, 2002 and 2001 the past service liability was Incapacity Table EKV 80 - - funded as follows: Discount Rate 7.0% - - Pension Fund Income Rate 7.0% 3.1% 1.8% 2002 2001 Pensionable salary growth rate 4.0% 3.5% 5.25% A. Past service liability recognised in the balance sheet1 1 361 830 1 259 718 Pension growth rate 3.0% 3.2% 3.9% B. Net assets of the pension funds Personnel turnover rate 0% - - Opening balance 1 256 581 1 162 342 Decreases By mortality - - Contributions of BPI Group companies Related to current costs 19 566 17 822 At 31 December, 2002 and 2001, the pensioners and Extraordinary 121 008 122 554 Employees who are beneficiaries of the Pension Funds are as Other 0 39 Contributions of Employees 1 477 1 459 follows: Net income of the funds 41 890 20 584 2002 2001 Pensions paid out of the funds (77 196) (68 219) Retirement pensioners 5 300 4 866 1 363 326 1 256 581 Survivor pensioners 865 836 C. Contributions to be transferred to the pension funds (note 4.17) 48 3 230 Current Employees 6 786 7 305 D. Total coverage (B+C) 1 363 374 1 259 811 Former Employees (article 137.ª A and 140.ª) 970 615 E. Excess coverage (D-A) 1 544 93 13 921 13 622 F. Coverage degree (D/A) 100% 100% 1) The increase in the liability resulting from not using the incapacity decreases is not included. At 31 December, 2002 and 2001 the amount of the retirement and survivor pension liabilities was as follows: In 2002, the contributions to the Pension Funds were made in 2002 2001 cash. In 2001 the contributions to the Pension Funds were A. Past service liability made in cash (th. euro 124 749) and through the transfer of Liability for pensions under payment 1 134 265 1 014 257 bonds (th. euro 17 125). Of which: [increase in the liability resulting from early retirements during the year] [57 387] [53 984] At 31 December, 2002 and 2001 the investments of Pension Past service liability of current Employees 315 445 335 538 Funds included th. euro 86 645 and th. euro 86 556, 1 449 710 1 349 795 respectively, of properties rented to BPI Group companies. B. Past service liability to be recognised on the balance sheet until the year 2021 87 880 90 077 C. Past service liability recognised on the balance sheet (A-B) 1 361 830 1 259 718 D. Future service liability 306 601 314 591 E. Total past and future service liability (A+D) 1 756 311 1 664 386
Since 31 December, 2001, in accordance with the procedures established in Bank of Portugal Notice 12 / 2001, incapacity decreases are not used in the calculation of the past service liability for current Employees. This change resulted in an increase in responsibilities, as of that date, of th. euro 90 077
Consolidated financial statements | Notes 179 At 31 December, 2002 and 2001, the past service liability 4.21. Subordinated debt (excluding the increased liability resulting from non utilization of This caption is made up as follows: incapacity decreases) not yet expensed is as follows: 2002 2001
2002 2001 Participating bonds A. Increased liability due to BFE 87 participating bonds – 1st Issue 8 673 9 397 early retirements 87 027 40 004 BFE 87 participating bonds – 2nd Issue 7 740 8 317 B. Actuarial losses (gains) related to Subordinated loans changes in actuarial assumptions BPI 94 subordinated cash bonds 49 880 49 880 B1. Recognised as deferred costs 2 204 BPI 96 subordinated cash bonds 74 820 74 820 B2. Recognised as deferred income (655) (655) BPI 96 subordinated perpetual bonds 74 820 74 820 C. Actuarial losses (gains) related to differences between actuarial and financial assumptions BPI 96 subordinated perpetual bonds in Yens 60 294 64 549 and actual values BFB 1997 / 2007 subordinated cash bonds 74 820 74 820 C1. Recognised as valuation fluctuations 120 390 71 179 BBI / 92 subordinated cash bonds 24 697 24 697 C2. Recognised as deferred costs 65 1 270 BPI 2001 "Rendimento Mais" C3. Recognised as deferred income (103) subordinated cash bonds 99 932 99 797 D. Liability not yet expensed (A+B+C2+C3) 88 641 40 516 BPI 2001 / 2011 subordinated cash bonds 150 000 150 000 625 676 631 097
At 31 December, 2002 and 2001, the increase in the liability resulting from not using the incapacity decreases amounted to th. euro 87 880 and th. euro 90 077, respectively.
At 30 June, 2001, the BPI Group amortised, by charge to reserves, the total amount of the deferred costs relating to the coverage of the increased liability due to early retirements occurred in 1999 and 2000, and not yet amortised on 31 December, 2000, as well as the increased liability due to early retirements made during the first half of 2001 (th. euro 80 402).
At 31 December, 2002 and 2001, the consolidated statements of income reflect costs relating to the pensions liability as shown below:
2002 2001
Personnel costs Current costs 19 566 17 822 Extraordinary losses (gains) Increased liability resulting from non using of incapacity decreases 8 503 Amortisation of early retirement costs1 10 364 4 512 Amortisation of actuarial losses (gains) related to: – Differences between actuarial and financial assumptions and actual values 130 – Changes on actuarial assumptions 169 (73) 19 036 4 569 1) In 2001, this caption corresponds to amortisation of the increased liability due to early retirements occurred in the second half of 2001.
180 Banco BPI | Annual Report 2002 At 31 December, 2002 these securities had the following characteristics:
Interest rate Nominal Value Interest rate as of 31.12.02 Maturity date (%) Participating bonds BFE 87 participating bonds – 1st Issue 14 209 Linked to the 1 year Euribor rate and to Banco BPI's profits BFE 87 participating bonds – 2nd Issue 13 872 Linked to the 1 year Euribor rate and to Banco BPI's profits Subordinated loans BPI 94 subordinated cash bonds 49 880 Linked to the 6 month Euribor rate 3.909 October, 2004 BPI 96 subordinated cash bonds 74 820 Linked to the 6 month Euribor rate 3.084 June, 2006 BPI 96 subordinated perpetual bonds 74 820 Linked to the 3 month Euribor rate 3.683 BPI 96 subordinated 60 294 4% until November 2011 and thereafter indexed to the rate 4.0 perpetual bonds in Yens (7 500 millions JPY) of the 5 year securities issued by the Japanese government BFB 1997 / 2007 subordinated 74 820 Linked to the 3 month Euribor rate 3.4625 November, 2007 cash bonds BBI / 92 subordinated cash bonds 24 940 Indexed to the TBA rate, an interest rate calculated 3.0625 June, 2003 and published by the Bank of Portugal BPI 2001 "Rendimento Mais" 100 000 Linked to the 6 month Euribor rate 4.405 July, 2011 subordinated cash bonds BPI 2001 / 2011 subordinated 150 000 5% in first year, 5.1% in the second year, 5.2% in the third 5.1 July, 2011 cash 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
The Bank of Portugal considers that the funds resulting from these liabilities are equivalent, for purposes of computing the solvency ratio, to own funds subject to a program of gradual reduction of the amounts during the five years preceding their repayment.
4.22. Minority interests This caption is made up as follows:
Balance sheet Income statement
2002 2001 2002 2001 Minority shareholders of: BPI Capital Finance Ltd. 248 290 300 007 9 893 17 478 CrediUniverso – Serviços de Marketing, S.A. 1 031 848 201 116 Inter-Risco – Sociedade de Capital de Risco, S.A. 3 784 4 060 (280) (337) BPI (Suisse), S.A. 1 (1) Solo – Investimentos em Comunicação, S.A.1 (11) 253 106 304 915 9 802 17 257 1) Results acquired from minority shareholders.
At 31 December, 2002 minority interests in BPI Capital Finance The A Series preference shares entitle holders to receive a non- Ltd. includes th. euro 238 390 corresponding to the value in -cumulative preference cash dividend calculated at a rate equal euro of 6 000 000 Series A preference shares and 4 000 000 to the three month US Dollar London Interbank Offered Rate Series B preference shares. Both the A and B Series shares carry ("Libor"), plus a spread of 1.95 percentage points on the no voting rights, have a nominal value of 25 US Dollars each nominal value. This dividend is payable quarterly on 18 March, and were issued by that subsidiary of Banco BPI in December 18 June, 18 September and 18 December. The B Series 1996. preference shares entitle the holders to receive a non-cumulative dividend computed by application to their nominal value of an Dividend payments and redemption of the preference shares are annual rate equivalent to the three month USD Libor rate, plus a guaranteed by Banco BPI. spread of 1.15 percentage points (up to 19 December, 2001)
Consolidated financial statements | Notes 181 and 2.65 percentage points (after 19 December, 2001) of their At 31 December, 2002 Banco BPI' share capital was made up nominal value. This dividend is payable on a quarterly basis on of 760 000 000 fully paid shares with a nominal value of 1 euro 19 March, 19 June, 19 September and 19 December. each.
During 2002 dividends paid in advance by BPI Capital Finance 4.24. Share premium account to these preference shareholders amounted to th. euro 9 568. From 31 December, 2000 to 31 December, 2002 the movement in this caption was as follows:
The A Series preference shares are redeemable in whole or in Share premium account as of 31 December, 2000 201 052 part at their nominal value, at the option of BPI Capital Finance, Capital increase in June, 2002 Ltd. on any dividend payment date as from December 2003, (by public deed dated 3 June, 2002) subject to prior consent of the Bank of Portugal and Banco BPI. Share premium on shares issued (note 4.23) 85 781 Share premium account as of 31 December, 2002 286 833 The B Series preference shares are redeemable in whole or in part at their nominal value at the option of BPI Capital Finance Ltd. subject to prior consent of the Bank of Portugal and In accordance with Decree 408 / 99, of 4 June, published in the Banco BPI. Diário da República – 1st B Series, 129, the share premium account may not be distributed and may not be used for the These shares are subordinated to all liabilities of Banco BPI and acquisition of own shares. "pari passu" to any other preference shares that may me issued by the Group in the future. 4.25. Reserves This caption is made up as follows: 4.23. Subscribed share capital 2002 2001 By public deed dated 3 June, 2002, Banco BPI' share capital Legal reserve 21 416 19 201 was increased from th. euro 645 625 to th. euro 760 000 by Free reserves 45 457 81 543 the issuance of 114 375 000 nominal shares of 1 euro each for Merger reserves 7 360 156 256 public subscription restricted to the shareholders. The shares 74 233 257 000 were paid at a subscription price of 1.75 euro each, Consolidation reserves (92 260) (328 273) corresponding to a share premium of 0.75 euro per share (18 027) (71 273) (note 4.24).
The Shareholders' General Meeting held on 3 April, 2002 In accordance with Article 97 of the General Regime for Credit empowered Banco BPI' Board of Directors to do the following Institutions and Financial Companies, approved by Decree-Law during a period of 18 months: 298 / 91 of 31 December and changed by Decree-Law 201 / 2002 of 25 September, Banco BPI must appropriate at least a) a) buy up to 10% of Banco BPI’s own shares on organised 10% of its net income each year to a legal reserve until the markets at prices not exceeding 110% of the cumulative amount of such reserve equals the greater of the amount of weighted average of the daily weighted average prices of share capital or the sum of the free reserves plus retained Banco BPI' shares on the 20 stock exchange sessions earnings. preceding the date of purchase, and not lower than 1 euro; The merger reserves at 31 December, 2002 include the effect of b) b) sell Banco BPI shares and share options to Employees and the merger of Banco BPI, BPI Factor, BPI Leasing, Estratégia, Directors of Banco BPI and subsidiaries, under the terms and Dixit and BPI Ventures into BPI SGPS and the spin-off of part of conditions established in the regulations for the Variable the net assets of BPI Investimentos into BPI SGPS. Remuneration Programme (RVA); Subsequently, BPI SGPS changed its name to Banco BPI and its corporate purpose to the banking business. The merger reserves c) sell to third parties at a minimum price of 10% below the at 31 December, 2001 resulted from the merger of BPI Capital, weighted average prices of Banco BPI' shares on the 20 stock BPI Participações and BPI Private Equity into BPI SGPS. exchange sessions preceding the date of sale. Those sales should be carried out on the stock exchange, except if related to ADR’s (American Depositary Receipts) placing in the United States of America.
182 Banco BPI | Annual Report 2002 At 31 December, 2002 and 2001 the share premium account 4.26. Goodwill and legal reserves of the subsidiaries consolidated by the full Goodwill on the acquisition by BPI Ventures of an 8% consolidation method which, under applicable regulation may participation in the share capital of Viacer during 2001 was not be distributed, amount to th. euro 128 789 and th. euro determined as follows:
291 833, respectively. These balances, weighted by Banco BPI’s Increase in shareholders' equity of Viacer 42 579 effective holding in the subsidiaries, amount to th. euro 41 448 Shareholders' equity acquired by and th. euro 208 222, respectively, and are included in the BPI Ventures (8.4%) 10 183 Cost of the investment acquired by BPI Ventures (25 481) caption CONSOLIDATION RESERVES. Goodwill on Viacer (15 298)
At 31 December, 2002 and 2001 the revaluation reserves of the subsidiaries consolidated by the full consolidation method Goodwill on the acquisition by Banco BPI of a 20% participation amounted th. euro 1 383 and th. euro 21 550, respectively. in the share capital of Douro SGPS in 2001 was determined as
These reserves are included in the caption CONSOLIDATION follows:
RESERVES. Shareholders' equity of Douro SGPS 3 961 Shareholders' equity of Douro SGPS acquired by The caption CONSOLIDATION RESERVES reflects the difference by Banco BPI (18.8%) 794 between the amount corresponding to Banco BPI’s effective Cost of the investment acquired by Banco BPI (3 592) Goodwill on Douro SGPS (2 798) participation in the equity of the associated and subsidiary companies and the cost of the investments, after making the adjustments considered necessary. Badwill on the acquisition by BPI Investimentos of a 17% participation in the share capital of Banc Post was determined From 31 December, 2000 to 31 December, 2002 the movement as follows: in this caption was as follows: Shareholders' equity of Banc Post 87 815 Reserves as of 31 December, 2000 (69 042) Shareholders' equity of Banc Post acquired Consolidated net profit for 2000 152 355 by BPI Investmentos (17.0%) 14 928 Dividends paid in 2001 (58 097) Cost of the investment acquired by BPI Investimentos (11 560) Goodwill on the acquisition of a 8.4% participation in Viacer (15 298) Badwill on Banc Post 3 368 Goodwill on the acquisition of a 20.1% participation in Douro SGPS (2 798) Badwill on the acquisition of a 17.0% participation in Banc Post 3 368 Amortisation of early retirements (80 402) Changes in the revaluation reserves of the insurance companies 33 Results' distribution to the Board of Directors (1 201) Others (191) Reserves as of 31 December, 2001 (71 273) Consolidated net profit for 2001 133 283 Dividends paid in 2002 (57 875) Provisions for equity investments (Notice 4 / 2002) (19 000) Changes in the revaluation reserves of the insurance companies (3 123) Results' distribution to the Board of Directors (50) Other 11 Reserves as of 31 December, 2002 (18 027)
Consolidated financial statements | Notes 183 4.27. Provisions The movement in the Group's provisions during 2002 was as follows:
Balances at Currency Balances 31-12-01 Increases Transfers Write offs Reversals fluctuations at 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 to provisions recorded by charge against reserves, under the
PLACEMENTS at 31 December, 2002 corresponds to the reversal of terms established by Bank of Portugal Notice 4 / 2002 (notes a provision to cover the transfer risk of the shareholders’ equity 2.5 and 4.25). As explained in note 2.4, in accordance with the of the Luanda Branch of Banco BPI. The reversal is due to the transitory regime allowed by the Notice, that amount will be fact that, in the transformation of Banco BPI’s Luanda Branch supplemented in 2003 by additional provisions of th. euro into an Angolan bank, Banco BPI converted part of the net 57 000, calculated based on the average daily market prices assets transferred into a credit over the new bank, which is during the second half of 2002, to be recorded by charge guaranteed by a deposit in euros. against reserves.
The amounts in the currency fluctuations and others column at At 31 December, 2002 currency fluctuations and others
31 December, 2002 for the captions PROVISIONS FOR UNREALISED includes th. euro 18 492 relating to the acquisition of Fundo
LOSSES ON ASSOCIATED COMPANIES and PROVISIONS FOR UNREALISED EFTA’s credits.
LOSSES ON OTHER FINANCIAL ASSETS include th. euro 19 000 relating
184 Banco BPI | Annual Report 2002 The movement in the Group's provisions during 2001 was as follows:
Balances at Currency Balances 31-12-01 Increases Transfers Write offs Reversals fluctuations at and others 31-12-02 Provisions for doubtful debts For loans and advances to Customers (note 4.4) 2 271 2 362 (86) (144) 4 403 For debtors and other placements (note 4.12) 947 (926) 21 Provisions for credit and interest in arrears For loans and advances to credit institutions (note 4.3) 113 130 306 5 492 118 928 For loans and advances to Customers (note 4.4) 96 057 18 479 437 (19 692) (1 473) (2 052) 91 756 For securities (note 4.5) 1 198 31 (790) 439 Provisions for country risk For loans and advances to credit institutions (note 4.3) 21 6 27 For loans and advances to Customers (note 4.4) 4 769 (2 054) 2 715 For securities (note 4.5) 409 409 For other placements (note 4.12) 27 821 27 821 Provisions for unrealised losses on bonds and other fixed income securities (note 4.5) 3 370 818 (1) (565) 3 622 Provisions for unrealised losses on shares and other variable-yield securities (note 4.6) 14 231 9 074 (444) (2 750) (3 972) 8 16 147 Provisions for unrealised losses on associated companies 567 371 938 Provisions for unrealised losses on Other investments (note 4.9) 3 974 3 946 902 (2 361) 7 6 468 Other financial assets (note 4.12) 1 951 1 078 (458) 55 2 626 Provisions for property received as settlement of defaulting loans (note 4.12) 9 744 15 (58) (2 829) 6 872 Provisions for retirement and survivor benefits (note 4.19) 5 886 3 753 (197) 9 442 Provisions for general credit risks (note 4.19) 160 579 24 196 (3 134) (745) 180 896 Provisions for other risks (note 4.19) 22 194 46 623 (653) (13 484) 54 680 Fund for general banking risks (note 4.19) 5 679 4 050 (351) (644) (2 008) (68) 6 658 474 798 115 108 0 (26 949) (30 582) 2 493 534 868
The provisions used during 2002 and 2001 for loans and advances to Customers and for securities correspond to write-offs in these periods.
At 31 December, 2001 reversals in the caption PROVISIONS FOR
OTHER RISKS include th. euro 12 141 corresponding to the reversal of part of the provision for deferred tax liabilities on unrealised gains on derivative operations, which are payable in the year the operations are settled (notes 2.10).
Consolidated financial statements | Notes 185 4.28. Off-balance sheet items The guarantee given to the EIB for loans granted substitutes the This caption is made up as follows: guarantee of a second signature (first class bank or the Portuguese State) required by that institution. 2002 2001
Guarantees provided and other contingent liabilities At 31 December, 2002 and 2001 the caption RESPONSIBILITIES Guarantees and sureties 3 045 337 3 224 501 FOR RETIREMENT PENSIONS NOT COVERED BY THE PENSION FUNDS Documentary credits 77 010 72 889 corresponds in full to the increase in the liability resulting from Acceptances and endorsements 368 146 Stand-by letters of credit 260 non utilization of incapacity decreases in the calculation of the Sureties and indemnities 66 51 past service liability relating to current Employees (note 4.20). Other contingent liabilities 13 3 122 781 3 297 860 At 31 December, 2002 and 2001 the caption COMMITMENTS TO Assets given as collateral 322 910 395 993 THE DEPOSIT GUARANTEE FUND corresponds to BPI’s irrevocable Commitments to third parties responsibility to pay the Fund, upon request by it, the part of the Irrevocable commitments annual contributions not yet paid and expensed. Irrevocable credit lines 54 475 115 573 Underwriting commitment 24 500 26 688 At 31 December 2002 and 2001 the caption POTENTIAL Responsibilities for retirement pensions (note 4.20) 87 880 90 077 COMMITMENTS TO THE INVESTOR INDEMNITY SYSTEM corresponds to the Commitments to the Deposit irrevocable obligation assumed by BPI, under the applicable Guarantee Fund 25 621 18 629 legislation, to pay the System, if required to do so, the amounts Potential commitments to the Investor Indemnity System 9 957 11 677 necessary to indemnify the investors. Other irrevocable commitments 14 848 5 869 Revocable commitments 2 929 187 3 067 035 The caption OTHER IRREVOCABLE COMMITMENTS at 31 December, 3 146 468 3 335 548 2002 includes th. euro 10 127 relating to share options issued Responsibilities for services provided by the BPI Group under the Variable Remuneration Programme Custody and safekeeping 19 172 830 22 156 887 (RVA). Amounts for collection 286 213 257 732 Assets managed by the institution 3 482 376 3 688 465 At 31 December, 2002 the BPI Group had the following third Other 11 795 12 031 party assets under its management: 22 953 214 26 115 115 Investment Funds and PPRs (Retirement Plan Funds) 3 652 714 Pension funds1 1 979 934 At 31 December, 2002 the caption ASSETS GIVEN AS COLLATERAL Capitalisation products 1 063 794 includes: 1) Includes the Group companies' Pension Funds.
– th. euro 126 218 relating to securities given in guarantee of The BPI Group carries out derivative operations in the normal loans from the European Investment Bank (EIB) to Banco BPI; course of its business, managing its own positions based on the expected evolution of the markets, to meet the specific needs of – th. euro 81 806 relating to securities given in guarantee of its Clients, or in order to hedge its exposure. interest rate swaps between the EIB and Banco BPI; The BPI Group operates with financial derivatives, namely – th. euro 78 337 relating to securities given in guarantee to the foreign exchange contracts, interest rate contracts, commodities Bank of Portugal to operate on the System for Settlement of contracts and contracts on shares or indexes. These operations Large Transactions (Sistema de Pagamento de Grandes are carried out in over-the-counter (OTC) markets and in Transacções); organised markets (especially stock exchanges).
– th. euro 25 726 relating to securities given as guarantee to the Deposit Guarantee Fund, and
– th. euro 1 606 relating to securities given in guarantee to Euronext to carry out derivate operations.
186 Banco BPI | Annual Report 2002 Derivatives are negotiated in organised markets in accordance through financial settlement. For medium and long term with those markets’ own rules. Derivatives are negotiated in the derivatives, contracts usually anticipate the possibility of netting OTC market, normally based on a standard bilateral contract outstanding balances with the same counterparty, which (an ISDA contract in the case of interprofessional transactions eliminates or reduces the credit risk. Additionally, in order to and a contract prepared by BPI in the case of transactions with reduce the credit risk in OTC derivatives, some agreements have Customers) which covers the derivative operations between the been signed under which the Bank receives from (or transfers to) parties and establishes the compensation of responsibilities in the counterparty, assets (in cash or in securities) to guarantee the case of non compliance (the extent of the compensation the fulfilment of its obligations. being covered by the contract and regulated by law). Derivative operations are mostly associated with other operations These transactions can be recorded by their book value, gross relating to assets and liabilities included in the financial replacement value and net market value. The book value is statements. The evaluation of these operations must take this based on the notional amount used in the calculation of the association into account. cash flows resulting from the underlying operations. The gross replacement value corresponds to the present value of the estimated loss, should the counterparty of each derivative transaction fail to meet its obligations. In the case of a derivative contract that provides for the compensation of responsibilities in the event of non-compliance, the gross replacement value is the sum of the market values of the operations covered by the contract, when positive. In case of operations where the contract does not establish the compensation of responsibilities (usually for short-term derivatives), the gross replacement value is equal to the sum of each individual transaction market value, if positive. The scope of the compensation clauses, in case of default, is considered by the BPI Group in a conservative perspective, considering that, in case of doubt, compensation does not exist. The net market value (fair value) corresponds to the value of the derivatives if they were sold or purchased in the market place on the reference date.
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).
The book value of derivative operations is merely a volume measure for the different markets, and it is not possible to establish a direct connection between this value and the credit risk of the operation. The credit risk of derivative operations is given by the positive gross replacement value. In futures contracts, the stock markets being the counterparties for the BPI Group’s operations, the credit risk is eliminated daily
Consolidated financial statements | Notes 187 At 31 December, 2002 and 2001 the BPI Group's derivative operations were as follows:
2002 2001
Book Gross replacement Net market Book value value1 value2 value Currency contracts OTC Outright forwards 154 177 1 499 (5 778) 163 418 Currency swaps 2 575 810 19 322 (54 499) 1 928 728 Medium and long term swaps 90 802 1 541 (8 297) 230 390 2 820 789 22 362 (68 574) 2 322 536 Interest rate contracts OTC FRA (forward rate agreements) 100 000 (10) 193 000 Medium and long term interest rate swaps 11 484 972 388 934 265 278 7 398 309 Options bought 3 750 109 109 3 750 Options sold 24 940 Traded on stock exchanges Futures3 714 873 0 (1 538) 253 399 12 303 595 389 043 263 839 7 873 398 Contracts on shares OTC Options bought4 916 630 14 797 14 797 960 525 Options sold4 76 309 (13 164) 116 827 Traded on stock exchanges Futures3 12 697 131 62 602 1 005 636 14 797 1 764 1 139 954 Contracts on commodities Traded on stock exchanges Futures3 81 2 81 0 2 0 16 130 101 426 202 197 031 11 335 888 Credit risk reduction agreements on derivatives (215 311) Netting effect5 (22 402) 16 130 101 188 489 197 031 11 335 888 1) Sum of the replacement amounts of the counterparties, considering compensation terms, when they exist. 2) Sum of the market values of the operations at the reference date (does not correspond to the impact on the financial statements of the revaluation of those operations). 3) The replacement cost of the futures is zero, because they are traded on organised stock exchanges. 4) Does not include options on bonds sold or bought. The net market value of these options is related principally to the variations in the remuneration of the Capital Seguro and Risco Limitado bonds issued by the Group. 5) Effect of compensating replacement values with the same counterparty, but recorded on different lines in the table.
188 Banco BPI | Annual Report 2002 At 31 December, 2002 the book 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 OTC Outright forwards 143 429 4 866 3 347 2 535 154 177 Currency swaps 2 279 209 138 173 158 428 2 575 810 Medium and long term swaps 73 432 17 370 90 802 2 422 638 143 039 235 207 19 905 2 820 789 Interest rate contracts OTC FRA (forward rate agreements) 50 000 50 000 100 000 Medium and long term interest rate swaps 1 917 632 833 742 1 407 458 5 800 188 1 525 952 11 484 972 Options bought 3 750 3 750 Traded on stock exchanges Futures 278 148 25 675 187 350 223 700 714 873 2 245 780 859 417 1 644 808 6 027 638 1 525 952 12 303 595 Contracts on shares OTC Options bought 218 534 16 184 52 025 628 012 1 875 916 630 Options sold 43 744 13 650 4 615 14 300 76 309 Traded on stock exchanges Futures 12 697 12 697 274 975 29 834 56 640 642 312 1 875 1 005 636 Contracts on commodities 81 81 4 943 474 1 032 290 1 936 655 6 689 855 1 527 827 16 130 101
At 31 December, 2002 the profile of derivative operations by At 31 December, 2002 the profile of derivative operations by counterparty was as follows: counterparty external rating was as follows:
Book Gross Book value % replacement Net market value value value Currency contracts Traded on OTC OTC with financial institutions 2 591 697 16 AAA 1 220 809 19 424 (57 011) OTC with Customers 229 092 2 AA 5 383 862 123 428 52 943 2 820 789 18 A 7 745 700 209 410 165 018 Interest rate swaps BBB 66 099 373 304 OTC with financial institutions 11 024 925 68 N.R. 985 980 51 165 37 182 OTC with Customers 563 797 3 15 402 450 403 800 198 436 On the Stock Exchange 714 873 5 Traded on stock exchanges 727 651 0 (1 405) 12 303 595 76 16 130 101 403 800 197 031 Contracts on shares Credit risk reduction agreements OTC with financial institutions 992 939 6 on derivatives (215 311) On the Stock Exchange 12 697 16 130 101 188 489 197 031 1 005 636 6 Note: The amounts were accumulated by rating levels of the counterparties, considering Contracts on commodities 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 On the Stock Exchange 81 counterparty follows the rules recommended by the Basel Committee in force on the 16 130 101 100 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.
Consolidated financial statements | Notes 189 4.29. Financial margin 4.31. Net profit on financial operations This caption is made up as follows: This caption is made up as follows:
2002 2001 2002 2001
Interest and similar income Gains on financial operations Interest on placements Gains and differences on the revaluation of the foreign exchange position 194 933 134 790 With credit institutions 107 832 155 452 Gains and differences on the revaluation Loans 838 276 903 658 of placements 330 351 324 753 Securities 152 233 171 533 Differences on the revaluation of third Other assets 808 1 898 party resources 236 309 185 381 Credit in arrears 8 308 6 874 Gains on off-balance sheet operations 48 285 18 101 Interest on swap operations 469 174 418 021 Other 204 128 395 649 Other interest and similar income 28 226 26 832 1 014 006 1 058 674 1 604 857 1 684 268 Losses on financial operations Income from securities 10 393 15 908 Losses and differences on the revaluation of the foreign exchange position 196 761 133 968 Interest an similar expenses Losses and differences on the revaluation Interest expense on funds raised of placements 291 051 296 336 With credit institutions 229 953 290 952 Differences on the revaluation of third Deposits 258 560 318 376 party resources 277 904 185 475 Debt securities 106 485 86 588 Losses on off-balance sheet operations 52 382 14 045 Other resources 898 6 882 Other 176 360 388 219 Interest expense on own funds and equivalents 28 808 34 758 994 458 1 018 043 Contributions to the Deposit Guarantee Fund 2 331 1 692 Interest on swap operations 460 975 424 298 Other interest and similar expenses 39 647 41 066 The caption GAINS ON OFF-BALANCE SHEET OPERATIONS at 31 1 127 657 1 204 612 December, 2002 includes th. euro 20 127 relating to premiums received due to early step-up and renegotiation of swap conditions. 4.30. Net commissions
This caption is made up as follows: At 31 December, 2002 the caption OTHER GAINS ON FINANCIAL
OPERATIONS and OTHER LOSSES ON FINANCIAL OPERATIONS, include 2002 2001 th. euro 96 125 and th. euro 96 047, respectively, related to Commissions received the operations Capital Seguro and Risco Limitado. On guarantees provided 22 679 19 444 On commitments to third parties 4 886 5 720 4.32. Personnel costs On banking services provided 143 003 144 661 On factoring operations 2 966 3 169 This caption is made up as follows:
On operations realised on behalf of third parties 14 517 15 525 2002 2001 Other 19 013 21 583 Remuneration of management and 207 064 210 102 supervisory bodies 8 317 9 068 Commissions paid Employee remuneration 209 810 212 443 On banking services provided by third parties 12 869 10 226 Social charges On operations realised by third parties 7 882 5 640 Mandatory 59 858 58 840 Other 1 224 1 365 Optional 2 790 2 857 21 975 17 231 Other personnel costs 4 886 5 069 285 661 288 277
The caption PERSONNEL COSTS at 31 December, 2002 and 2001 includes the full amount of the variable remuneration cost, namely the cost of implementing the Variable Remuneration Programme (RVA) in the years 2002 and 2001. This programme is part of a remuneration and share incentive plan with two
190 Banco BPI | Annual Report 2002 components – the granting of shares and options over shares – At 31 December, 2001 the caption OTHER PRIOR YEAR INCOME and covers Executive Directors and Group Employees with and PRIOR YEAR EXPENSES, include th. euro 64 024 and th. euro variable remuneration equal to or exceeding 2 500 euros 64 479, respectively, relating to the revaluation of the (note 2.5). components of Capital Seguro’s operations.
4.33. Other operating income and other operating expenses At 31 December, 2002 and 2001 the caption OTHER
These captions are made up as follows: EXTRAORDINARY EXPENSES includes th. euro 19 036 and th. euro 4 569 relating to the coverage of the liability for retirement and 2002 2001 survivor pensions, respectively (note 4.20). At 31 December, Other operating income 2002 and 2001, the caption OTHER EXTRAORDINARY EXPENSES also Income from real estate 1 118 1 209 includes th. euro 12 978 and th. euro 4 456 corresponding to Remuneration from serving on management bodies 16 19 other costs relating to early retirements in 2002 and 2001, Sundry services rendered 9 352 1 706 Reimbursement of expenses 28 956 27 552 respectively. Gains on leased assets 942 781 Recovery of loans and interest in arrears 14 678 18 855 Other 13 225 12 615 4.35. Income tax 68 287 62 737 The tax rate, measured by the relationship between the provision Other operating expenses for income tax and profit before income tax, was as follows: Subscriptions and donations 2 784 2 170 2002 2001 Remuneration of participating securities 140 140 Losses on leased assets 804 1 778 Income tax 44 743 59 630 Other 4 158 4 017 Profit for the year before income tax1 186 729 195 679 7 886 8 105 Effective tax rate 24.0% 30.5% 1) Includes profit before income tax and minority interests and excludes profits on subsidiary companies excluded from the consolidation.
4.34. Extraordinary income and expenses Profits generated by the Off-shore Financial Branches of the These captions are made up as follows: Group during 2002 and 2001, which are exempt from taxation, were as follows: 2002 2001
Extraordinary income 2002 2001 Gains on the sale of investments and fixed assets 24 923 8 144 Funchal Financial Branch 7 836 15 338 Indemnities due to non-compliance with contracts 96 115 Santa Maria Financial Branch 2 821 16 407 Other prior year income 16 689 74 056 Other extraordinary income 1 530 2 181 43 238 84 496 The tax losses of Banco BPI available to be carried forward at Extraordinary expenses 31 December, 2002 amounted to th. euro 43 845. Losses on the sale of fixed assets 3 942 278 Other losses on fixed assets 2 421 296 Fines and other legal penalties 112 118 Losses arising from theft, loss and falsification 363 151 Indemnities due to non-compliance with contracts 32 5 Prior year expenses 20 858 69 940 Other extraordinary expenses 20 834 8 672 48 562 79 460
At 31 December, 2002 the caption GAINS ON THE SALE OF
INVESTMENTS AND FIXED ASSETS 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.
Consolidated financial statements | Notes 191 4.36. Consolidated net profit Consolidated net profit for 2002 and 2001 is made up as follows:
2002 2001
Banco BPI’ net profit (non-consolidated)1 118 018 124 682 BPI Investimentos’ net profit (non-consolidated) 11 174 (479) Banco Fomento S.A R.L.’s (Mozambique) net profit (non-consolidated) 4 347 2 855 Banco de Fomento S.A.R.L.’s (Angola) net profit (non-consolidated)2 11 205 Banc Post net profit (non-consolidated) 848 1 208 Contribution of Banco BPI’ subsidiary and associated companies (excluding the banks) to the consolidated net profit 20 172 28 185 Profit / (loss) generated by recovery of the adjustments considered in the goodwill paid on the acquisition of BFE relating to: – Unrealized gains on securities (293) – Sundry provisions 132 925 Reversal of the amortisation of the contributions to the pension fund resulting from early retirements in Banco BPI 14 685 14 696 Recovery of the adjustments considered in the goodwill paid on the acquisition of Universo Banco Directo 33 Elimination of dividends (41 204) (55 700) Elimination of gains and losses on transactions between Group companies (761) 44 088 Other consolidation adjustments 1 453 (26 917) 140 069 133 283 1) Net profit includes the net results of all the companies incorporated within Banco BPI at 31 December, 2002. 2) The net result of Banco de Fomento S.A.R.L (Angola) corresponds to its operations in the second half of 2002; net results of operations in 2001 and the first half of 2002 are included in Banco BPI’s net profit.
192 Banco BPI | Annual Report 2002 The contribution of Banco BPI and its subsidiary and associated companies to the consolidated net profit of 2002 and 2001, is as follows:
2002 2001
Amount % Amount % Banks Banco BPI, S.A.1, 2 110 489 78.9 107 295 80.5 Banco Português de Investimento, S.A.1,3 (3 220) (2.2) (4 972) (3.7) Banco de Fomento S.A.R.L. (Mozambique)1 2 274 1.6 510 0.4 Banco de Fomento S.A.R.L. (Angola)1 10 539 7.5 Banco Post S.A.1 (330) (0.2) 3 348 2.5 Specialised loan companies BPI Locação de Equipamentos, Lda. 15 0.0 (18) 0.0 BPI Rent – Comércio e Aluguer de Bens, Lda. 318 0.2 909 0.7 Eurolocação – Comércio e Aluguer de Veículos e Equipamentos, S.A. 57 0.0 12 0.0 Asset management companies and dealers BPI Dealer – Sociedade Financeira de Corretagem, S.A.3 0.0 1 529 1.1 BPI Dealer – Sociedade Financeira de Corretagem (Mozambique), S.A.R.L.1 (13) 0.0 (29) 0.0 BPI Fundos – Gestão de Fundos de Investimento Mobiliários, S.A. 12 643 9.0 12 380 9.3 BPI – Global Investment Fund Management Company, S.A. 812 0.6 1 239 0.9 BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 1 983 1.4 2 358 1.8 Sofinac – Sociedade Gestora de Fundos de Investimento Imobiliário, S.A. 193 0.1 116 0.1 BPI (Suisse), S.A.1 (353) (0.2) Venture capital companies F. Turismo – Capital de Risco, S.A. 52 0.0 29 0.0 Inter-Risco – Sociedade de Capital de Risco, S.A.1 (1 299) (0.9) (1 655) (1.2) Solo – Investimentos em Comunicação, SGPS, S.A. (10) 0.0 (1) 0.0 Insurance companies BPI Vida – Companhia de Seguros de Vida, S.A. 2 407 1.7 1 502 1.1 Cosec – Companhia de Seguros de Crédito, S.A. 750 0.5 1 035 0.8 Companhia de Seguros Allianz Portugal, S.A. (808) (0.6) 2 536 1.9 Others BPI, Inc.1 (12) 0.0 17 0.0 BPI Madeira, SGPS, Unipessoal, S.A. (2) 0.0 CrediUniverso – Serviços de Marketing, S.A. 201 0.1 116 0.1 Douro SGPS, S.A. (54) 0.0 1 797 1.3 Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 425 0.3 422 0.3 Promática – Sociedade de Informação e Organização de Empresas, S.A. 229 0.2 216 0.2 Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda. (20) 0.0 (218) (0.2) Digitmarket – Serviços de Informação, S.A.1 (595) (0.4) (1 233) (0.9) Viacer – Sociedade Gestora de Participações Sociais, Lda. 3 398 2.4 4 043 3.0 140 069 100.0 133 283 100.0 1) Adjusted profit. 2) In 2001, Banco BPI’s net profit corresponds to the sum of the contributions of BPI SGPS, Banco BPI, BPI Ventures SGPS, Dixit SGPS, Estratégia SGPS, BPI Leasing and BPI Factor. 3) In 2002, BPI Dealer merged into Banco Português de Investimentos.
Consolidated financial statements | Notes 193 The net results of the companies extinguished under the 4.38. Loans and advances to the Directors of Banco BPI corporate reorganisation carried out on 20 December, 2002 are In accordance with the Company’s policy the members of the as follows: Executive Committee of the Board of Directors of Banco BPI are entitled to participate in the Subsidised Housing Loan Scheme 20021 2001 available to all the banks’ Employees. At 31 December, 2002 Banco BPI, S.A. 69 920 107 755 the outstanding mortgage own housing loans granted to the BPI Leasing 6 156 6 794 members of the Executive Committee of the Board of Directors BPI Factor 2 285 1 894 by banks of the Group amounted to th. euro 1 025. BPI Ventures (7 181) (39 770) Dixit SGPS / BPI Sfac (74) (178) Estratégia SGPS 196 474 1) Until 20 December, 2002. 5. Explanation added for translation The accompanying financial statements are a translation of financial statements originally issued in Portuguese in 4.37. Personnel accordance with generally accepted accounting principles in The average and end of period number of Employees1, during Portugal and the disclosures required by the Portuguese Chart of 2002 and 2001 is as follows: Accounts for the Banking System, some of which may not conform with or be required by generally accepted accounting 2002 2001 principles in other countries. In the event of discrepancies, the Average of End of Average of End of the period the period the period the period Portuguese language version prevails. Members of the Board of Directors 17 14 18 18 Management staff 545 504 557 571 Other staff 3 220 3 177 3 325 3 293 Other Employees 3 870 3 685 4 105 3 951 7 652 7 380 8 005 7 833 1) Employees of the Group companies consolidated by the full consolidation method. Employees of foreign branches of Banco BPI are also included.
194 Banco BPI | Annual Report 2002 Legal certification of accounts and audit report
MAGALHÃES, NEVES E ASSOCIADOS
Sociedade de Revisores Oficiais de Contas Inscrição n.º 95 Registo na CMVM n.º 223 NIPC 502 558 610
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 20 December, 2002 – note 1) for 2002, which comprise the consolidated balance sheet as of 31 December, 2002, which reflects a total of th. euro 25,669,074 and shareholders’ equity of th. euro 1 168 875, including net profit for the year of th. euro 140 069, 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, 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
Legal certification of accounts and audit reports | 195 MAGALHÃES, NEVES E ASSOCIADOS – 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 31 December, 2002 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, which, except for the change referred to in paragraph 6 below, have been applied on a basis consistent with that of the preceding year, 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 note 2.4, in the year 2002 Bank of Portugal, through its Notice 4 / 2002 of 25 June, introduced a new methodology for determining unrealised losses on equity investments and the respective provisions required. A transitory regime was established for recording the provisions for equity investments that were already in the portfolio at 31 December, 2001 on a gradual basis over a period of five years. The provisions recorded in 2002 under this new regime amounted to th. euro 21 616, th. euro 19 000 having been recorded by charge against reserves, under the terms established by the transitory regime referred to above (notes 3.2, 4.25 and 4.27).
7. The consolidated financial statements for the year ended 31 December, 2001 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 28 February, 2002, includes an emphasis paragraph regarding the changes in the methodology for calculating and recording the liability for retirement pensions introduced by Bank of Portugal’s Notice 12 / 2001 of 23 November (notes 2.12, 4.13, 4.20 and 4.28) and the amortisation of deferred early retirement costs directly to reserves (notes 2 and 4.25).
Oporto, 28 February, 2003
Magalhães, Neves e Associados – SROC Represented by Maria Augusta Cardador Francisco
196 Banco BPI | Annual Report 2002 Auditor’s report
To the Shareholders of Banco BPI, S.A.
(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 20 December, 2002), which comprise the consolidated balance sheet as of 31 December, 2002, 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 31 December, 2002 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, which, except for the change referred to in paragraph 4 below, have been applied on a basis consistent with that of the preceding year.
4. As explained in note 2.4, in the year 2002 Bank of Portugal, through its Notice 4 / 2002 of 25 June, introduced a new methodology for determining unrealised losses on equity investments and the respective provisions required. A transitory regime was established for recording the provisions for equity investments that were already in the portfolio at 31 December, 2001 on a gradual basis over a period of five years. The provisions recorded in 2002 under this new regime amounted to th. euro 21 616, th. euro 19 000 having been recorded by charge against reserves, under the terms established by the transitory regime referred to above (notes 3.2, 4.25 and 4.27).
5. The consolidated financial statements for the year ended 31 December, 2001 are presented by the Bank in order to comply with the requirements for publication of accounts. The auditors’ report on these financial statements, dated 28 February, 2002, includes an emphasis paragraph regarding the changes in the methodology for calculating and recording the liability for retirement pensions introduced by Bank of Portugal’s Notice 12 / 2001 of 23 November (notes 2.12, 4.13, 4.20 and 4.28) and the amortisation of deferred early retirement costs directly to reserves (notes 2 and 4.25).
Oporto, 28 February, 2003
Auditor's report | 197 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 20 December, 2002) for the year ended 31 December, 2002, for which the Board of Directors is responsible.
During 2002 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 31 December, 2002, 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, 28 February, 2003
Jorge Figueiredo Dias President
José Ferreira Amorim Member
Magalhães, Neves e Associados – SROC Represented by Maria Augusta Cardador Francisco Member
198 Banco BPI | Annual Report 2002 Annexes Points in the Report on the BPI Group's Governance and chapters in the Directors' Report where it is possible to find information conforming to the model report contained in the CMVM's Regulation 07/2001 – Corporate Governance, and in the document entitled "CMVM Recommendations on Corporate Governance – December 2001"
Points in the Report on the BPI Group's Governance Chapters in the Directors' Report
I – Disclosure of Information 2.1, 2.2, 3.2, 8.1, 8.2, 8.3, 9.1 and 9.2 «Banco BPI shares» II – Exercise of voting rights and shareholder representation 5.1, 5.2, 5.3, 5.4 and 5.5 III – Corporate rules 2.2.4, 4.1, 4.2 and 7.1 «Risk Management» IV – Management Body 2.2.3, 2.2.4, 2.2.6, 2.2.7, 3.1, 3.2 and Appendix V – Institutional investors 6.1
200 Banco BPI | Annual report 2002 The BPI Group’s Corporate Governance Report
1. Reorganisation of the BPI Group 1.1. Corporate reorganisation 202 1.2. Management reorganisation 203
2. Structure, division of duties and functioning of the BPI Group's principal management and control bodies 2.1. The principal structure of the Group's governance and supervision 204 2.2. General Meeting and the Group's principal management and supervisory bodies 205 2.2.1. General Meeting 205 2.2.2. Audit Board 206 2.2.3. Management Board 206 2.2.4. Internal Control Committee 208 2.2.5. Remuneration Committee 209 2.2.6. Executive Committee 209 2.2.7. Banco Português de Investimento's Management 211 2.2.8. The Group’s functional organisation chart 212
3. Remuneration 3.1. Remuneration of members of Banco BPI and Banco Português de Investimento Management Boards 214 3.2. Share incentive scheme (Portuguese initials "RVA") 214
4. Shareholder control and transferability of shares 4.1. Shareholder control 217 4.2. Shareholder agreements relating to the exercise of company rights or to the transferability of shares 217
5. Exercise of voting rights and Shareholder representation 5.1. Encouraging the exercise of voting rights 217 5.2. Attribution of voting rights 218 5.3. Procedures relating to proxy representation 218 5.4. Procedures relating to postal voting 218 5.5. Voting via electronic mail 218
6. Institutional investors 6.1. Diligent, efficient and critical exercise of company rights 218
7. Code of ethics and professional conduct 7.1. Safeguarding against conflicts of interest, violation of professional confidentiality and respect for the codes of ethics and professional conduct 218
8. Communication with the market 8.1. Investor Relations Division 219 8.2. Representative for market relations 220 8.3. Use of the new information technologies in the disclosure of financial information and preparatory documents for General Meetings 220
9. Banco BPI share performance and dividend policy 9.1. Banco BPI share performance 221 9.2. Dividend policy 221
10. Appendix of the BPI Group’s corporate governance report 10.1. Other management or supervisory positions occupied by members of Banco BPI's Management Board in other companies 222
Annexes | The BPI Group’s Corporate Governance Report 201 REPORT
1. REORGANISATION OF THE BPI GROUP 1.1. Corporate reorganisation Banco BPI’s appreciable weight in the Group’s activities, the within BPI SGPS, which at the same time altered its business revised tax treatment of SGPS’s (investment holding companies), object in order to engage in banking activity and changing its penalising their tax burden, and the need to improve the BPI name to "Banco BPI". In this way, the BPI Group ceased to be Group’s capacity to respond to the challenges posed by an headed by an investment holding company (SGPS), to be increasingly competitive market, were key factors behind the replaced by its commercial bank – Banco BPI. In conformity significant internal reorganisation initiative. This process was with this new status, Banco BPI is now the BPI Group company concluded at the end of 2002, giving rise to meaningful changes listed on the Euronext market, as well as the entity responsible in terms of the company and its organisational and governance for the Group’s strategic command. structure. Another aspect marking the reorganisation programme was the concentration at Banco BPI and at Banco Português de These changes are fundamentally aimed at attaining the Investimento of typical commercial and investment banking following objectives: activities, respectively. In this context and as regards commercial simplifying the Group’s legal structure, making it easier banking, the Leasing and Factoring areas were integrated into for the market to understand; Banco BPI’s structure, with the consequent extinction of the companies that had until then conducted these activities, i.e. refining the Group’s governance model; BPI Leasing and BPI Factor, respectively. Insofar as the other endowing BPI with a more flexible organisation; specialised credit companies are concerned – BPI Rent, Eurolocação and BPI Locação de Equipamentos – their products optimising the allocation of human resources; were integrated into Banco BPI’s commercial product range, with reducing operating costs. the result that the independent existence of the above- -mentioned companies will no longer be justified once the contracts that they are presently bound to expire. The reorganisation carried out entailed as its principal and most visible alteration Banco BPI's incorporation, by merger,
THE BPI GROUP’S PRINCIPAL STRUCTURE AT 31 DECEMBER 2002 (post reorganisation)
Domestic Commercial Banking and financial investments Banco BPI
Investment Banking International Asset Management Private Equity Insurance Commercial banking Banco Português Banco BPI BPI Fundos Inter-Risco Allianz Portugal de Investimento 100% Cayman 100% 100% 84% 35%
Banco de Fomento BPI Pensões Cosec Angola 100% 100% 50%
Banco de Fomento BPI Vida Mozambique 100% 100%
202 Banco BPI | Annual report 2002 As concerns investment banking, of particular note was the At the investment bank, the Management Board created an incorporation of stockbroking activity into the investment bank executive committee to which the bank’s day-to-day management through the merger, by incorporation, of BPI Dealer into Banco has been delegated. The Executive Committee is made up of Português de Investimento, as well as Banco BPI’s takeover of four executive directors. Its meetings are also attended by three certain commercial banking activities that had hitherto been central managers (two from the investment bank and the undertaken by the investment bank. manager in charge of the private equity area). The Management Board meets once a month. The reorganisation process also extended to the private equity area: BPI Ventures, the company whose business object was the Finally, it should be noted that the reorganisation process had an management of investments in the development capital sector, overall impact on the Group’s architecture that was not limited was incorporated within BPI SGPS (now Banco BPI), similar to to a redefinition of the top management tier. Indeed, a what occurred in August 2001 with the companies BPI substantial number of divisions were created, modified and Participações, BPI Private Equity and BPI Capital. In this extinguished, with a consequent redistribution of areas of manner, Banco BPI now aggregates all the private equity responsibility, management positions and the human resources investments, except those allocated to Inter-Risco which, allocated thereto. because it is a company with a very specific legal form – venture capital company – and operational framework – partnership with IAPMEI –, meant that it has maintained its legal autonomy.
1.2. Management reorganisation The change to the Group’s corporate structure and, in particular, the merging of BPI SGPS and Banco BPI into a single entity, led to a readjustment of the top management structure. The Executive Committee of Banco BPI’s Management Board is responsible for the conduct of the BPI Group’s business, subdivided into four specialised executive committees: commercial banking, investment banking, credit risks and market risks, which meet every week. These committees are composed not only of members of Banco BPI’s Executive Committee, but also of central managers and other personnel occupying senior management positions in the matters under discussion. This subdivision has contributed to delving deep into the level of reflection and raising the quality of the decision- -making process.
Annexes | The BPI Group’s Corporate Governance Report 203 2. STRUCTURE, DIVISION OF DUTIES AND FUNCTIONING executive directors, two of whom are deputy-chairmen of the OF THE BPI GROUP'S PRINCIPAL MANAGEMENT AND Management Board. This committee has as its chief duties the CONTROL BODIES appointment of the external auditors, the formulation of annual 2.1. The principal structure of the Group's governance and programmes for the internal and external audits, the monitoring supervision of internal control procedures at the Group’s two Portuguese The BPI Group's major strategic guidelines are defined by Banco banks, and overseeing the areas whose activities give rise to the BPI's Management Board. These guidelines, which are most operating risks borne by the BPI Group. periodically sanctioned by the Shareholders' General Meeting, are then implemented by the Executive Committee of Banco BPI’s The Audit Board is responsible for monitoring all of Banco BPI’s Management Board and whose activity is systematically activity, ensuring compliance with the law and the company’s monitored by the latter. Thus, the Management Board assesses statutes. the Group’s performance against the operating plan, evaluates the BPI Group’s position relative to its main competitors and analyses The Remuneration Committee fixes the remuneration of the all the opinions of rating agencies, supervisory entities and members of Banco BPI’s governing bodies, and assesses data financial analysts with respect to the BPI Group’s activity. At the furnished by the Executive Committee of Banco BPI’s plenary meetings – in 2002 six such meetings were held – the Management Board and Banco Português de Investimento’s Group’s quarterly results and respective market announcements Management Board for the purpose of calculating the respective are approved. annual variable remuneration.
The Executive Committee of Banco BPI’s Management Board is The Company Secretary, besides performing the functions the executive body responsible for the management of the contemplated by the law, is responsible for relations with the Group’s business operations. Its most important functions include various supervisory authorities, namely, the Bank of Portugal, the allocation of capital, evaluating the profitability of the main CMVM (Securities Market Commission), Instituto de Seguros de business areas, financial risk management, deciding on and Portugal (Insurance Institute of Portugal) and the Direcção Geral monitoring credit risks (when exposure exceeds EUR 25 million), de Impostos e Inspecção de Finanças (Tax Department). Banco making decisions concerning investment or disinvestment in BPI’s Secretary also has to prepare the minutes of Management equity interests and defining human resources policy. Board and Executive Committee meetings, and then circulating these amongst all the members, while ensuring that supporting In order to ensure that all of the BPI Group’s risk areas are documents are made available at the Management Board monitored at close quarters, the Management Board set up an meetings. Internal Control Committee in 1999 which includes four non-
THE BPI GROUP’S PRINCIPAL GOVERNANCE AND SUPERVISORY STRUCTURE
Banco BPI
Shareholders’ General Meeting Remuneration Audit Committee Board
Internal Control Banco BPI’s Company Committee Management Board Secretary
Banco BPI’s Executive Committee
Executive Committee Executive Committee Executive Committee Banco Português de for Credit Risks for Commercial Banking for Market Risks Investimento
BPI’s Management Board
Executive Committee for Investment Banking
204 Banco BPI | Annual report 2002 2.2. General Meeting and the Group's principal management and In 2002, the General Meeting met twice: supervisory bodies a) BPI SGPS’s Shareholders’ General Meeting was held in Oporto 2.2.1. General Meeting on 3 April, at which shareholders corresponding to 57.2% of Banco BPI’s General Meeting (GM) is the governing body that the voting rights were present or represented. The proposals assembles together all the Shareholders entitled to vote, that is, relating to the following matters were approved with 99.8% of those owning at least one thousand Banco BPI shares. votes in favour: Shareholders owning less than this number of shares can group together for the purpose of attaining this number and, in this – the individual and consolidated annual reports and accounts manner, acquire the right to vote. Shareholders have three ways of BPI SGPS (now Banco BPI) for the 2001 financial year; to participate at GM's: personal attendance, representation (by – appropriation of net profit for 2001, including the other shareholders or third parties) or postal voting. distribution of a dividend of 9 cents for each one of the 645 625 000 shares representing the share capital at In terms of the Company's statutes, the votes cast by one single 31 December 2001; shareholder, whether in his own name or as the representative of another or others, that exceed twelve and a half per cent of the – vote of confidence and praise to the Management Board and company's share capital, shall not be taken into account. to the other governing bodies for the manner in which they carried out their respective mandates during 2001; It is the General Meeting's function: – election of the members to the governing bodies for the to consider the Company's management and supervision; mandate term 2002 / 2004; to elect the members of the Management Board, the Audit Board and the Remuneration Committee; – increase in the company’s share capital from 645 625 000 to 760 000 000 euro, in cash and through the issue of to consider the Management Board's report, to discuss 114 375 000 shares reserved for the shareholders at a and vote on the consolidated and individual accounts, as price of EUR 1.75 per share; well as on the Audit Board's opinion;
To decide upon the appropriation of the annual results, – acquisition and sale of treasury stock destined for the share capital increases and the issue of bonds convertible into incentive scheme - RVA – covering employees and directors shares or with the right to subscribe for shares; with executive functions.
to decide upon changes to the statutes. b) On 8 November, BPI SGPS’s Shareholders’ General Meeting met again in Oporto, at which shareholders corresponding to 60.4% of the voting rights were present or represented. The General Meeting General Meeting unanimously approved the proposals Chairman submitted relating to: Rui Manuel Chancerelle de Machete – proposed merger by incorporation of BPI Ventures, SGPS, Deputy-Chairman S.A. and Dixit – Investimentos Estratégicos, S.A. into BPI Vasco Manuel Airão Marques SGPS, S.A; Secretaries Galucho – Indústrias Metalomecânicas, S.A. – proposed demerger of Banco Português de Investimento, (Vitalina Justino Antunes) S.A., in the form of a merger-demerger, involving the Produtos Sarcol, Lda. (Estela M. Barbot) transfer of part of the respective net assets to BPI SGPS, Company Secretary S.A. In accordance with the relevant project, this demerger Rui de Faria Lélis also entailed a reduction in Banco Português de Investimento, S.A.’s share capital from 175 180 000 to 20 000 000 euro, and the corresponding amendment to article 4 of the demerged company’s statutes;
Annexes | The BPI Group’s Corporate Governance Report 205 – proposed merger by incorporation of Banco BPI, S.A. into 2.2.3. Banco BPI’s Management Board BPI SGPS, S.A. and the consequent amendment to articles Banco BPI’s Management Board is the governing body charged 1, name (transformation of the BPI SGPS name to Banco with pursuing the company’s general interests and safeguarding BPI), 3, business object (banking) and 8 of BPI SGPS, the management of its business operations, notably, by means of S.A.’s memorandum and articles of association for the the coordination, synchronisation and control of the activities of purpose of allowing this company to issue covered warrants; the companies held directly or indirectly. It is also the Management Board’s duty to regulate its internal functioning, – proposed merger by incorporation of BPI Factor - Sociedade including drawing up and approving the regulations for the Portuguesa de Factoring, S.A., BPI Leasing - Sociedade de Management Board and the Executive Committee. These Locação Financeira, S.A. and Estratégia, SGPS, S.A. into regulations were last revised on 21 April 1999. BPI SGPS, S.A. The Board is composed of nineteen members. Of these, twelve 2.2.2. Audit Board are non-executive directors: ten represent shareholders owning It is the Audit Board's function to supervise the Company's 47.1% of Banco BPI's share capital and two are independent affairs and to verify strict compliance with the law and its (i.e. not representing directly or indirectly key shareholders). The statutes. Consequently, the Audit Board prepares an annual Executive Committee comprises seven executive directors who report on its work and issues an opinion on the annual report between them held 0.2% of the share capital at 31 December and accounts, as well as on the proposed appropriation of net 2002. profit / loss, presented to the General Meeting by the Management Board. The Management Board can only adopt resolutions when the majority of its members are present or represented, with resolutions being passed by an absolute majority of votes cast: Audit Board the Chairman has the casting vote. Any member of the Chairman Management Board can be represented by another Management Jorge de Figueiredo Dias Board member, but none may represent at any meeting more Members than one member. José Ferreira Amorim Magalhães, Neves & Associados, SROC (Augusta Francisco) Members of the Management Board are elected for three-year António Dias & Associados, SROC (alternate) (António Dias) periods, with re-election always being permitted.
It is a legal requirement that one permanent member and one alternate member of the Audit Board must be statutory auditors (or a firm of such auditors).
The Audit Board met five times during 2002.
206 Banco BPI | Annual report 2002 Structure of Banco BPI’s Management Board
Management Board Internal Remunerations Executive Non-executive Non-executive Control Committee Committee directors directors Committee (independent)
Chairman
Artur Santos Silva Chairman Deputy-Chairmen
4 Carlos da Câmara Pestana Chairman
Fernando Ulrich Deputy-Chairman
Rui Octávio Matos de Carvalho Chairman Members Alfredo Rezende de Almeida 5 António Domingues António Farinha Morais1 Armando Leite de Pinho 6 Fernando Ramirez2 Isidro Fainé Casas João Sanguinetti Talone José Pena do Amaral Klaus Dührkop Manuel de Oliveira Violas Manuel Ferreira da Silva Maria Celeste Hagatong Diethart Breipohl3 Roberto Egydio Setúbal Tomaz Jervell 1) Co-opted to fill vacancy left by António Seruca Salgado’s renouncement: the registration process with the relevant authorities is currently being attended to. 2) Representing Caixa Holding, S.A. 3) Representing RAS International, N.V. 4) Representing IPI – Itaúsa Portugal SGPS, S.A. 5) Representing Cotesi – Companhia de Têxteis Sintéticos, S.A. 6) Representing Arsopi – Indústria Metalúrgica Arlindo Soares de Pinho, S.A.
Annexes | The BPI Group’s Corporate Governance Report 207 2.2.4. Internal Control Committee Banco BPI’s Management Board is responsible for: The Internal Control Committee set up within the ambit of the Management Board has been functioning since 1999 and appointing members to the Executive Committee and comprises four non-executive directors. Its mission is to systematically monitoring its activity; supervise the conduct of internal and external audits and ensure approving the strategic plan, as well as the BPI Group’s actual compliance with the goals of the internal control system. annual operating plan and budget, and attentively Internal Control Committee overseeing its execution; Chairman approving and monitoring risk exposures in excess of Ruy Octávio Matos de Carvalho 15% of shareholders’ equity; Members Carlos da Câmara Pestana annually evaluating the Bank’s internal rating system Alfredo Rezende de Almeida applied to large and medium-sized companies; Caixa Holding, S.A., Sociedad Unipersonal monitoring the BPI Group’s principal financial holdings; (Fernando Ramirez)
making decisions regarding strategic investments and partnerships, that is, in the financial area; The Committee has as its objectives: preparing the annual report and accounts and proposals evaluating the Group’s efficiency in the employment of for the appropriation of net profit for submission to the its resources and in the setting of controls which protect General Meeting; against any possible losses arising from the conduct of monitoring the evolution of the liabilities and assets of its activity, namely, credit, market, liquidity and operating the Group’s staff pension funds; risks;
proposing to the General Meeting any alterations to the ensuring the integrity, reliability and up-to-date status of memorandum and articles of association, share capital the accounting and financial information that serves as increases and bond issues which fall outside its the basis for management-information systems; jurisdiction (bonds convertible into shares and bonds verifying the conformity of the Bank's operations and with the right to subscribe for shares); business with legal provisions and other standards issued decide on the issue of bonds when this falls within its by the supervisory authorities, as well as with the BPI authority; Group's internal regulations and policy;
approve the code of conduct of the companies controlled overseeing the internal audit of the Group's principal by the Group. banks and holding company, approving and monitoring the execution of the internal and external auditors' activity plans;
Details of the other positions occupied by members of Banco monitoring the execution of external and audit BPI's Management Board at BPI Group or other companies are programmes, in particular, considering the presented in the appendix at the end of this report. recommendations made by the external auditors with respect to changes to control procedures; During 2002, Banco BPI's Management Board met six times. approving the internal control report of the Group’s two Portuguese banks;
reviewing the doubtful debt provisions relating to the loan portfolio based on economic criteria and the specific provisions for financial investments and the securities portfolios;
208 Banco BPI | Annual report 2002 2.2.5. Remuneration Committee analysing loss incidents arising from customer or The Remuneration Committee's function is to fix the employee fraud; remuneration of the members of Banco BPI's governing bodies,
reviewing credit risk exposures falling between 5% and and to formulate the remuneration policy and the retirement 15% of Banco BPI’s consolidated shareholders’ equity; regime to apply to members of Banco BPI's Executive Committee and to members of Banco Português de Investimento's analysing default situations exceeding 90 days relating to Management Board. credit risk exposures above EUR 500 000;
monitoring unrealised losses pertaining to the securities The Remuneration Committee is composed of three shareholders and financial holdings portfolio; elected for three-year terms by the General Meeting, and who in turn elect a Chairman (who has the casting vote). keeping abreast of the situation of the BPI Group’s staff pension fund; Remuneration Committee Chairman analysing customers’ complaints systematically reported Itaúsa Portugal – Sociedade Gestora de Participações in the reports prepared by the Quality Division. Sociais, S.A. Members Cotesi – Companhia de Têxteis Sintéticos, S.A. In terms of the Management Board's regulations, the Internal Arsopi – Industrias Metalúrgicas Arlindo Soares de Pinho, S.A. Control Committee may only comprise members with non- executive functions. The independence of this Committee’s members vis-à-vis the Executive Committee is aimed at ensuring The Remuneration Committee met twice in 2002. compliance with its objectives. 2.2.6. Executive Committee The internal and external auditors of the Group’s banks attend Banco BPI’s Executive Committee is the body responsible for the the meetings of the Internal Control Committee and collaborate overall management of the Group’s business activity. All the directly with it. members of the Executive Committee play an active role in the day-to-day management of the Group’s business, and are The internal and external auditors, the Management Board responsible for one or more specific business areas in Chairman, as well as the directors and central managers accordance with their profile and their individual specialist responsible for the areas analysed at the meetings also attend areas. Without prejudice to the greater or lesser focus of one or and lend support to the Internal Control Committee’s meetings. other member in a particular area, the decision-making process in matters relating to the Group’s strategic direction is done on a The Internal Control Committee met four times during the course collective basis. of 2002. Members of Banco BPI’s Executive Committee 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
Annexes | The BPI Group’s Corporate Governance Report 209 accumulated trends with budgeted and previous-year figures. In Principal areas of responsibility of Banco BPI’s Executive parallel, the non-executive directors are regularly informed of the Committee main decisions taken by the Executive Committee, when prior to allocation of capital and assessment of the profitability of 2002 this same information was only provided at the the Group's main business operations; Management Board’s plenary quarterly meetings. management of market risks; The Executive Committee can only adopt resolutions when the deciding on and monitoring loan risks; majority of its members are present, with such decisions deciding upon investing or disinvesting in other requiring an absolute of the votes. The Chairman has the casting companies; vote. Proxy voting is not permitted. The directors who are members of the Executive Committee relinquish their positions defining human resources policy, monitoring its on the Committee once the accounts relating to the financial execution; year in which they celebrate their sixty-second birthday are appraisal of the BPI Group’s top management; approved. The Executive Committee met thirty three times in
disciplinary power over the BPI Group’s employees. 2002.
The Executive Committee meets at least once a month for the purpose of dealing with matters of general interest relating to Wide powers are also vested in the Executive Committee of Banco BPI and its subsidiaries. It is involved on a weekly basis Banco BPI’s Management Board, within the ambit of with the specialised areas of the Group’s management, for which managing the participating interests, such as those: three specific committees were created: to represent the Company in and out of court; a) Executive Committee for Commercial Banking to acquire, dispose of or encumber any assets or rights; The Executive Committee for Commercial Banking is presided to appoint persons to serve on the governing bodies to over by the Deputy-Chairman of the Executive Committee of which the Company has been elected; Banco BPI’s Management Board. It is the body responsible for managing the technological infrastructure, the central support to give binding instructions to the companies that are structures of the commercial networks and for the activity under BPI's full control. relating to following customer segments: Individuals, Small Businesses and Companies. With the object of keeping the non-executive directors permanently abreast of the Group's affairs, they are sent monthly The Committee is composed of five Banco BPI Executive information concerning the Group's consolidated economic and Directors, a non-Executive Director of the investment bank financial situation, as well as the performance of the principal (Manuel Menezes) and two central managers from Banco BPI business units. This information gives an account of the most (Benjamim Pinho and Pedro Barreto). important changes that took place and compares monthly and
Principal areas of responsibility of Commercial Banking’s Executive Committee
Areas of responsibility Fernando Ulrich (Chairman) Asset Management, Accounting and Planning, Property Financing António Domingues Financial area, Cards, Information Systems, Operations and Procurement, Security, Premises and Fixed Assets, and the International Division 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)
210 Banco BPI | Annual report 2002 b) Executive Committee for Credit Risks 2.2.7. Banco Português de Investimento’s Management The Executive Committee for Credit Risks is the body that takes Banco Português de Investimento is the Group unit specialising the principal decisions relating to aspects referring to the in investment banking, namely, Private Banking, Equities and concession, monitoring and recovery of loans. This body includes Corporate Finance. – besides members of Banco BPI’s Executive Committee – two directors of the investment bank – Francisco Costa and Maria do Banco Português de Investimento’s Management Board is made Carmo Oliveira, responsible for the South and North Wholesale up of 11 members – with its chairman and deputy-chairman Banking areas, respectively – and the central managers of Banco being the same as those on Banco BPI’s Executive Committee – BPI – Benjamim de Pinho and Filipe Cartaxo, responsible for the 5 executive directors and 4 non-executive directors. The day-to- Credit Risk and Project Finance Division, respectively, as well as day business management is delegated to an Executive the central managers of Corporate Banking - Maria Isabel Committee composed of 4 executive directors and three central Lacerda (Large Companies Northern Division), João Alvares managers. This body is presided over by Manuel Ferreira da Ribeiro (Medium-sized Companies Northern Division), João Silva, who is also is a director sitting on Banco BPI’s Executive Coutinho (Large Companies Southern Division) and Joaquim Committee. Pinheiro (Medium-sized Companies Southern Division). Banco Português de Investimento’s Management Board c) Executive Committee for Market Risks Members Executive Non-executive
The Executive Committee for Market Risks is the body charged Artur Santos Silva Chairman with analysing the conformity of the positions and mechanisms Fernando Ulrich Deputy-Chairman associated with the evaluation of interest, currency and equities Manuel Ferreira da Silva risks. This body comprises, besides members of Banco BPI’s Rui Lélis Executive Committee, the director of the investment bank Rui José Carlos Agrellos Martins dos Santos, responsible for the Risk Analysis and António Borges de Assunção Control areas and the Department of Economic and Financial Rui Martins dos Santos Maria Celeste Hagatong Studies, and the central manager Isabel Castelo Branco, Francisco Costa responsible for the Financial Divisions of the Group’s two banks Maria do Carmo Oliveira and the central manager José Manuel Toscano, head of the Manuel Meneses Group’s International Division.
The policy, procedures and allocation of powers amongst the Banco Português de Investimento’s Executive Committee
Group’s various bodies and departments on matters relating to Members Areas of responsibility the control and management of the Group’s risks – credit risk, Manuel Ferreira da Silva Chairman market risk, liquidity risk and operational risk, are described in Rui Lélis Legal detail in a separate chapter of the directors’ report. José Carlos Agrellos Private Banking António Borges de Assunção Corporate Finance Carlos Casqueiro Corporate Finance Henrique Cabral Meneses Equity Rui Ferreira Private Equity
Annexes | The BPI Group’s Corporate Governance Report 211 2.2.8. The Group’s functional organisation chart Product factories The BPI Group’s organisational business model is based on the The development of the banks’ commercial products and services is interaction of three key concepts: multi-specialisation, segregated by specialised Divisions (product factories), part of segmentation of the customer base and multi-channel which – property financing, motor vehicle leasing and factoring – distribution. simultaneously serving the individuals, small businesses and companies segments. A new unit was formed at the end of 2002 Executive management, supervision and control called "Customer Resources", at which all the Bank’s liability-side The composition and functions of the BPI Group’s management, products are concentrated, such as time deposits, unit trust funds, supervisory and control bodies are detailed in points 2.1 to structured products and capitalisation insurance. 2.2.7 of this report. Channels Central structures BPI possesses a multi-channel distribution network, fully This group embraces the entire universe of shared services (of integrated, composed of approximately 500 retail branches, the back-office kind) which acts as direct support to the Group’s homebanking services (BPI Net), telephone banking (BPI other units by undertaking the development and maintenance of Directo), specialised branches and structures dedicated to the its operational, physical and technological infrastructure. corporate and institutional segment. Outside Portugal, BPI is engaged in commercial banking business in Angola and Corporate functions Mozambique, through two local-law banks. BPI has also a The units grouped around the "corporate functions" are number of branches and representative offices which essentially associated with functions under the direct command of Banco provide support to Portuguese emigrant communities. BPI’s Executive Committee. Business support Marketing This block encompasses three areas – Quality, Training, Brand The marketing function is carried out in a segregated manner Communication and Management – managed in an integrated according to the segmentation between Individuals, Small fashion under the command of the same member of Banco BPI’s Businesses and Companies. In the case of Individuals and Small Executive Committee with a view to realising the BPI Group’s Businesses Marketing, this function is undertaken by two Divisions objective of positioning itself as a market benchmark in terms of which report to the same executive head: Strategic Marketing – quality and services. This implies the close coordination of the concentrated above all on CRM (Customer Relationship programmes covering quality, technical and behavioural training, Management) solutions – and Operational Marketing – focusing on brand communication and development. 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.
Credit risks The Executive Committee for Credit Risks is the body that takes the principal decisions concerning the aspects relating to the concession, monitoring and recovery of lending operations. At a more operational level, credit risk management is segregated by four segments: individuals, small businesses, companies and securities. The manner in which the various risks are managed at the BPI Group is comprehensively dealt with in a separate chapter in the Directors’ Report.
212 Banco BPI | Annual report 2002 THE GROUP’S FUNCTIONAL ORGANISATION CHART
Banco BPI
General Meeting
Banco BPI’s Audit Board Management Board Internal Control External Auditors Company Committee Secretary Banco BPI’s Internal Auditors Executive Committee Corporative functions Human Resources Financial Management Risk Analysis and Control Investor Relations Accounting and Planning Public Relations Legal
Executive Committee Executive Committee Executive Committee Executive Committee for Credit Risks for Commercial Banking for Market Risks for Investment Banking
Business Central structures Areas Information 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 BPI Cayman Equities Businesses Banking Institutional Banking Corporate Finance and Project Finance Banco de Fomento Private Banking Angola Marketing Banco de Fomento BPI Suisse Operational Marketing Marketing – Companies Mozambique Strategic Marketing
Credit Risks Individuals and Small Large and Medium-sized Businesses Companies, Wholesale Banking, Institutional Banking, Project Finance, International
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 Traditional network Corporate Centres Paris Investment Centres Institutional Banking Geneva In-Store Electronic Banking Hamburg Automated Banking Newark Caracas Telephone Banking Johannesburg Internet Housing shops Other Real Estate Channels Emigration International
Business support Brand Communication and Management Quality Training
Annexes | The BPI Group’s Corporate Governance Report 213 3. REMUNERATION 3.1. Remuneration of members of Banco BPI and Banco 3.2. Share incentive scheme (Portuguese initials – RVA) Português de Investimento Management Boards Description The remuneration of members of Banco BPI and Banco A share incentive scheme (RVA) has been in force at the BPI Português de Investimento Management Boards is fixed by the Group since the 2001 financial year. It is essentially a Remuneration Committee, a body which is, as mentioned earlier, remuneration scheme, the income from which is intrinsically composed of three Banco BPI shareholders elected for three-year linked to the stock market appreciation in Banco BPI shares. In terms by the General Meeting. this way, the RVA constitutes an important instrument of the Group's human resources management policy in that it bonds The variable part of remuneration of the Chairman and Deputy- together employees' and directors' interests with those of its Chairman of the Executive Committee of Banco BPI's Shareholders. Management Board is calculated by applying a formula which essentially takes into consideration the evolution of the The programme encompasses all the executive directors of consolidated results and the provisions not allotted to specific Banco BPI and the directors of Banco Português de risks. Investimento, and all employees whose annual variable remuneration is equal to or exceeds EUR 2 500. In the case of the remaining members of Banco BPI's Executive Committee and the members of the Banco Português de The characteristics of the RVA – 2002 were essentially identical Investimento’s Management Board, the amount paid as variable to those of the RVA – 2001 programme, with the exception of remuneration is defined by the Remuneration Committee the form in which the shares were attributed. In terms of a following a proposal of the Chairman of Banco BPI's resolution of the Executive Committee of Banco BPI’s Management Board which is based on the Group's and their Management Board, the shares were only awarded under a individual performances. condition subsequent whereas in the RVA-2001 programme the shares were awarded under the condition subsequent or The non-executive directors are paid in the form of fixed monthly precedent regime. salaries and attendance vouchers. The variable component of remuneration, which up until 2000 The following remuneration was paid to the members of Banco was paid wholly in cash, began to be paid with effect from 2001 BPI's Management Board for the exercise of their functions in to Directors and Employees covered by the RVA partly in cash 2001, with estimated figures for 2002: and partly in shares and options. For these, the portion of the share and options component (RVA) of variable remuneration Remuneration of members of Banco BPI Management Board1,2 varies between a minimum of 10% and a maximum of 50%,
2001 2002 with the percentage rising commensurately with the level of the employee’s or director’s responsibility. Fixed Variable Total Fixed Variable Total
Executive3 1 569.84 2 524.3 4 094.1 1 668.0 2 524.0 4 192.0 The RVA contemplates two modes: awarding of share and share Non Executive 486.8 0 486.8 486.8 0 486.8 purchase options. Each one of these represents approximately Total 2 056.6 2 524.3 4 580.9 2 154.8 2 524.0 4 678.8 Note: figures in thousands of euro. half of the overall amount of the incentive that is attributed in 1) Designated until 21 December 2002 as BPI SGPS’s Management Board the following manner: 2) The variable portion of Banco BPI executive directors' remuneration is fixed by the Remuneration Committee subsequent to the holding of the Annual General Meeting. The information presented relating to 2002 constitutes an estimate. The amounts that – attribution of Banco BPI shares, the availability of which takes the Remuneration Committee finally attributes may differ slightly from this estimate. 3) Remuneration received for functions performed on the Management Boards of BPI place in a phased manner at four points in time: 25% SGPS, Banco BPI and Banco Português de Investimento. becomes freely available at the time of the award; thereafter, 4) The fixed remuneration was altered in March 2001 with the result that in 2002 such changes apply to the whole year. the remaining 75% become available at the end of the first, second and third years;
– attribution of Banco BPI share purchase options that can be exercised between the first and fifth year of being awarded.
214 Banco BPI | Annual report 2002 2001 and 2002 share incentive programmes The number of executive directors of the banks, managers and It is estimated that the members of the Executive Committee of employees of the BPI Group covered by the RVA-2002 was Banco BPI’s Management Board earned EUR 2.5 million in the 2 157, or 33% of the Group's permanent workforce in Portugal. form of variable remuneration in respect of 2002. Of this figure, it is estimated that EUR 1.1 million refers to RVA incentives, i.e. The amount of variable remuneration paid to directors, managers 44% of the amount of variable remuneration. and employees in 2002, both in cash and under the RVA % of the RVA in No. of persons covered incentive programme (shares and options), totalled EUR 25.2 variable remuneration RVA 2001 RVA 2002 million. The part of variable remuneration attributed to Chairman and Deputy-Chairman of employees through the RVA incentive scheme was EUR 3.5 Banco BPI Executive Committee1 50% 2 2 million, that is, 14% of the total variable remuneration paid to Other directors of Banco BPI Executive Committee1 40% 5 5 employees. Directors of Banco Português de Investimento2 35% 8 8 The amount of variable remuneration attributed to members of Managerial staff, of whom: 498 482 the Executive Committee of Banco BPI's Management Board and Central managers 30% 45 38 to the directors of Banco Português de Investimento is defined Deputy central managers 25% 61 59 by the Banco BPI’s Remuneration Committee, which only takes a Managers 20% 73 78 decision after the holding of Banco BPI’s Shareholders’ General Assistant and deputy managers 15% 319 307 Meeting. Accordingly, at the date of this report, it is not possible Other employees 10% 1 566 1 660 Total - 2 079 2 157 to determine the number and overall value of the shares and 1) Executive directors of BPI SGPS in 2001 and up until 20 December 2001. options to be awarded to these executives. The figures indicated 2) Other directors of Banco BPI and Banco Português de Investimento in 2001 and for the members of Banco BPI’s Executive Committee and for up until 20 December 2002. the members of Banco Português de Investimento’s Management Board with respect to 2002 are an estimate. Share incentive scheme The estimated number of shares to be awarded to Banco BPI In 2001, there was a reduction of 15% in the variable executive directors under the 2002 RVA programme is about remuneration paid to the directors with executive functions in 259 thousand. The attribution date for purposes of the RVA line with the trend in the Group’s results. regulations is 22 February 2003 and the value placed on the shares for purposes of calculating the number of shares is EUR 2.14.
RVA 2001 Share attribution programme RVA 2001 (Figures adjusted for dividends and the RVA 20021 2002 share capital increase) Attribution date 21-Mar-02 22-Feb-03 Price2 2.67 euro 2.54 euro3 2.14 euro No. of shares attributed4 Banco BPI Executive Committee5 215 875 218 996 259 th. Banco Português de Investimento’s Management Board6 86 888 89 452 69 th. Managerial staff and other Group employees 635 217 679 497 816 096 1) The number of shares attributed or to be attributed under the RVA-2002 programme corresponds: for managerial staff and Group employees, to the effective attribution value; for Banco BPI’s Executive Committee and for Banco Português de Investimento’s Management Board, at estimated value, still subject to a decision of the Remuneration Committee. 2) Results from the weighted average of the Banco BPI share price at the last 10 stock exchange sessions prior to the date the RVA benefits are awarded. 3) Attribution price of the RVA 2001 adjusted for the capital increase realised in May 2002. 4) 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. 5) BPI SGPS’s Executive Directors in 2001 and up until 20 December 2002. 6) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002.
Annexes | The BPI Group’s Corporate Governance Report 215 The following is the calendar for the availability of the shares Programme for the attribution of share purchase options awarded under the RVA 2001 and 2002 programme: The estimated number of options to be attributed to Banco BPI’s executive directors under the 2002 programme is 1.7 million. As Availability RVA 2001 RVA 2002 is the case with the share award programme, the date for the 25% 21 March 2002 - 25% 21 March 2003 22 February 2003 awarding of the options was 22 February and the exercise price 25% 21 March 2004 22 February 2004 fixed at EUR 2.14. The option value was set at EUR 0.33. 25% 21 March 2005 22 February 2005 25% - 22 February 2006 1) The effective availability occurs after compliance with the essential procedures for the contracting of the award operation.
RVA 2001 Share options scheme RVA 2001 (Figures adjusted by the 2002 RVA 20022 share capital increase)1 Attribution date 21-Mar-02 22-Feb-03 Exercise period 21-Mar-03 to 21-Mar-07 22-Feb-04 to 22-Feb-08 No. of shares that may be acquired for each option held 1 1 1 Exercise price3 2.67 euro 2.54 euro 2.14 euro Value of each option 0.65 euro 0.62 euro 0.33 euro No. of options granted Banco BPI Executive Committee4 859 725 904 216 1.7 million Banco Português de Investimento’s Management Board5 346 818 364 767 448 th. Managerial staff and other Group employees 2 606 474 2 741 681 5 286 397 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) The number of shares attributed or to be attributed under the RVA-2002 programme corresponds: for managerial staff and Group employees, to the effective attribution value; for Banco BPI’s Executive Committee and for Banco Português de Investimento’s Management Board, at estimated value, still subject to a decision of the Remuneration Committee . 3) Results from the weighted average of the Banco BPI share price at the last 10 stock exchange sessions prior to the date the RVA benefits are awarded. 4) BPI SGPS’ Executive Directors in 2001 and up until 20 December 2002. 5) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002.
Programme for the attribution of share purchase options – 2001 and 2002
Banco Português de Executive Committee of Managers and Investimento’s Management Banco BPI1, 2 other employees Board1, 3 RVA-2001 (number of options) Granted in March 20024, 5 904 216 364 767 2 741 681 Exercised in 2002 000 Extinguished in 2002 0 0 24 131 RVA 2001 options do existing at 31 Dec. 02 904 216 364 767 2 717 550 RVA 2001 exercisable options at 31 Dec. 02 0 0 150 648 RVA-2002 (number of options) Granted in February 20035 1.7 million 448 th. 5 286 397 Exercisable in 2003 000 Extinguished in 2003 --- RVA 2002 options existing at 31 Dec. 036 1.7 million 448 th. 5 286 397 Total RVA Programme Number of options Options existing in Feb. 037 2.6 million 812 th. 8 003 947 Options not exercisable until 31 Dec. 03 1.7 million 448 th. 5 286 397 Options exercisable until 31 Dec. 03 904 216 364 767 2 717 550 Number of shares needed for the exercise of: Options granted (and not exercised) At beginning of 2003 904 216 364 767 2 566 902 At the end of 20036 1.7 million 448 th. 5 286 397 Options to be exercised At beginning of 2003 0 0 150 648 At the end of 20036 904 216 364 767 2 717 550 1) Actual value of RVA 2001 and estimated value for RVA 2002. 2) BPI SGPS Executive Directors in 2001 and up until 20 December 2002 (date on which BPI SGPS was transformed into Banco BPI). 3) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002 4) Number of options granted adjusted for BPI SGPS’s (now Banco BPI) share capital increase realised in May 2002. 5) 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. 6) Assuming that no options are exercised or extinguished during 2003. 7) After the attribution of the RVA 2002 options.
216 Banco BPI | Annual report 2002 The BPI Group carries out (using an in-house model based on 4.2. Shareholders agreements relating to the exercise of the Black-Scholes model) its own hedging operations for the company rights or to the transferability of shares share incentive scheme (RVA). To this end, it holds share There are no shareholder agreements of the type referred to in portfolios allocated to hedging the obligations arising from the article 19 of the Securities Code relating to the exercise of awarding of shares under the suspensive condition within the company rights, or to the transferability of Banco BPI shares; in ambit of the RVA 2001 and options. particular, there is no voting or defence agreement for warding off takeover bids. Powers of the Executive Committee for the execution / modification of the RVA incentive scheme A preferential rights' agreement was entered into in 1986 In the regulations of the RVA share incentive scheme, the between certain of BPI's most significant shareholders, and has principal functions attributed to the Executive Committee for the been successively renewed for three-year periods. programme's execution / modification are: Any of the contracting parties wishing to transfer all or part of – fixing the maximum number of shares and options to be the shares covered by the agreement is bound to give preference awarded each year, as well as the criteria (of which the on such disposal to the other contracting parties, upon the same evaluation of each employee always forms part) and the terms and conditions. conditions underlying the distribution of these benefits amongst the Group's employees; The forementioned agreement (revalidated in August 2000), is presently subscribed by 6 Banco BPI shareholders: at 31 – interpreting the RVA regulations and covering any loopholes; December 2002, the agreement covered shares representing 42.6% of Banco BPI's share capital. – making occasional changes to the RVA's contractual provisions, such as for example, bringing forward the option maturity 5. EXERCISE OF VOTING RIGHTS AND SHAREHOLDER dates or dispensing with the verification of the suspensive REPRESENTATION conditions. 5.1. Encouraging the exercise of voting rights Banco BPI actively encourages the exercise of voting rights by 4. SHAREHOLDER CONTROL AND TRANSFERABILITY OF means of: SHARES 4.1. Shareholder control – ample disclosure of the convening of General Meetings (by Banco BPI has not adopted any defensive clause impeding the mail, electronic mail and by the Internet), the topics to be free transferability of the shares and the unrestricted review by discussed thereat and the different ways of exercising the right shareholders of the performance of Board members. to vote;
At 31 December 2002, the share capital held by shareholders – the description in the meeting notices sent to shareholders of represented on the Management Board and on the Audit Board the procedures to be adopted for those opting for postal or stood at 47.8%. The percentage of the corresponding voting proxy voting (regime enshrined in the statutes). rights, taking into account own shares held by the Group and the statutory limitation, was 42.9%. Banco BPI’s capital at that date The proposals to be submitted for consideration and deliberation was held by 24 364 shareholders. at the Meeting, as well as any other preparatory information, are placed up to 15 days prior to the date set for the meeting, at the Banco BPI's statutes stipulate that the votes cast by a single disposal of shareholders at Banco BPI’s head office (Rua shareholder, in his own name and also as the representative of Tenente Valadim, 284, Oporto) and on the site www.bpi.pt. The another or others, which exceed 12.5% of the company's total sending of any one of the above-mentioned material, including votes, shall not be counted. copies of ballot (voting) papers for the exercise of postal voting, may also be requested via a publicly-disclosed e-mail address.
Annexes | The BPI Group’s Corporate Governance Report 217 5.2. Attribution of voting rights 5.5. Voting via electronic mail A shareholder can vote provided he owns at least 1 000 Banco BPI believes that at the present moment, all the necessary BPI shares on the 15th day prior to the date set for the General conditions are not yet present that permit a high degree of Meeting. The registration of ownership must be proved to Banco operating security and reliability in the reception of votes cast by BPI by 6 p.m. of the fifth working day prior to the date set for way of electronic mail. the meeting. Every 1 000 shares correspond to one vote. 6. INSTITUTIONAL INVESTORS 5.3. Procedures relating to proxy representation 6.1. Diligent, efficient and critical exercise of company rights At its own initiative BPI pursues a policy of sending to The BPI Group's entities operating on the market as institutional shareholders the full content of proposed matters to be included investors – the fund-management companies, the pension-fund in the order of business, as well as proxy forms, accompanied by management company, the investment bank and the a self-addressed postage-paid envelope. development capital companies – are bound to the rules designed to ensure the diligent, efficient and critical use of the Proxy representations must be communicated by letter addressed rights attaching to the negotiable securities of which they are the to the Chairman of the General Meeting Board, with the holders or whose management has been entrusted to them, signature duly certified (by a notary, lawyer or legal clerk or by namely as concerns information and voting rights. the company). Each letter must be received at Banco BPI’s head office by 6 p.m. on the fifth day prior to the date set for the 7. CODE OF ETHICS AND PROFESSIONAL CONDUCT General Meeting. 7.1. Safeguarding against conflicts of interest, violation of professional confidentiality and respect for the codes of The Chairman of the Shareholders' General Meeting Committee ethics and professional conduct is as a rule available to represent shareholders, expressing in a With the aim of safeguarding absolute respect for all the clear manner his voting intentions where the shareholder does standards of an ethical and professional conduct nature at each not stipulate any specific instructions. of the BPI Group's companies, employees, members of governing bodies, service providers and external consultants are obliged to 5.4. Procedures relating to postal voting declare in writing that they have full knowledge of the norms BPI sends annexed to the notice convening the General Meeting, included in: ballot papers addressed to the Chairman of the General Meeting Board, by means of which the shareholder can express in a clear – codes of conduct of the respective associations; form his vote. Each ballot paper must be signed and this signature duly certified (by a notary, lawyer or legal clerk). Ballot – BPI's own codes, adapted in accordance with the type of papers must be received at Banco BPI’s head office by 6 p.m. activity carried out by each one of the banks and investee on the fifth working day prior to the date set for the General companies, and which in certain instances contain even more Meeting. restrictive rules than those embodied in directives issued by the associations to which they belong and/or by the supervisory Postal votes count towards the constitution of the General authorities. Meeting quorum, and the respective ballot papers shall be opened by the Chairman of the General Meeting Committee, who The ethical and professional conduct regulations imposed upon must check that they are authentic and valid, after counting the those who work for the BPI Group are intended to guarantee physical voting for each one of the proposals. The postal vote professional confidentiality, the defence of Customers' interests cast by a shareholder who is present or represented at the and the prohibited use of privileged information for personal General Meeting shall be ignored. gain.
218 Banco BPI | Annual report 2002 The dealing limits are particularly strict in all matters relating to 8. COMMUNICATION WITH THE MARKET the execution of securities operations for one’s own account (and 8.1. Investor Relations Division that of families), especially at the companies directly involved in Banco BPI attaches special importance to the maintenance of a this type of activity, such as Banco de Investimento and BPI frank and transparent relationship with financial analysts, Fundos. By way of example, any stocks acquired by employees investors, shareholders, authorities, mass media and other and by members of these companies’ governing bodies may only market participants. be sold 30 days after they were acquired. This constitutes an effective limitation of the risk of improper involvement in Stemming from this permanent preoccupation, BPI set up in operations of a speculative nature. 1993 a structure exclusively dedicated to relations with investors and with the market. The Investor Relations Division reports In general terms, it is important to stress the obligation imposed directly to Banco BPI's Executive Committee and has as its on all the Group’s employees and directors to communicate mission providing the market with accurate, regular, timely and within 24 hours to management, all the operations realised unbiased information concerning the BPI Group, with particular involving securities, except in the case where the Group’s emphasis on information that could have a material impact on stockbroking channels have been used (which is tantamount to the Banco BPI share price. communication of the operation for this purpose). In the case of employees involved in stockbroking activity, use of the Group’s The Investor Relations Division has as its principal functions stockbroking channels is compulsory. guaranteeing, to the Authorities and to the market, compliance with legal and regulatory reporting obligations to which Banco In the case of BPI shares, the requirements are even tighter. BPI is bound, responding to the information needs of investors, Members of management or others with a professional category financial analysts and other interested parties, and lending on a par with or above a manager, as well as those employees support to the Executive Committee in aspects relating to Banco involved in the preparation of the annual report and accounts or BPI's presence on the market as a listed entity. the issue of shares or securities convertible into shares, are prohibited from dealing in Banco BPI shares, as well as in Within the scope of the first-mentioned responsibilities, of securities convertible into shares or those which confer such particular importance is the disclosure of information classified rights: as "relevant fact" or "other communications", the furnishing of quarterly information concerning the Group's activity and results, – in the period falling between the 15th day before the end of and the preparation of the annual and interim reports and each quarter or each financial year, and the day the accounts. corresponding results are disclosed; In the sphere of advisory support given to the Executive – in the period falling between the decision of BPI’s Committee, we highlight the monitoring of the Banco BPI share management to propose the issue of shares representing its price in its multiple facets, backing in the direct contact that share capital or of securities convertible into shares or those the Executive Committee regularly has with financial analysts which confer such rights, and the respective public and institutional investors (national and foreign), covering both announcement. conferences and road shows and individual (one-on-one) meetings. Finally, it is worth mentioning that the codes of conduct in force at the BPI Group are available on request from the Investor In this respect, we refer to the Conference for Investors and Relations Office. Financial Analysts which the Executive Committee has been staging every year since 2001. BPI has a policy of informing the market of important issues presented at these gatherings and making available on its website details of presentations made to analysts and institutional investors.
Annexes | The BPI Group’s Corporate Governance Report 219 It is important to underline the fact that since the last quarter of Electronic mail 1991, BPI has been disclosing information relating to its activity In parallel, the quarterly announcement of the BPI Group's and consolidated earnings on a quarterly basis. For a number of results – the most important periodic communication with the years now BPI has pursued a policy of publishing a half-yearly market – is founded primarily on electronic mail dissemination, report and accounts. These accounts are subjected to a full- addressed to the supervisory authorities, the media, analysts, as scope external audit when the law requires merely a limited well as all institutional investors and to individuals who expressly review. request this information.
The Investor Relations Division contact details are frequent and Generally speaking, all the documents issued in paper form widely broadcast. All the information of a public nature (including preparatory documents for the General Meetings) are regarding the BPI Group can be requested from the Investor available for dispatch in electronic format upon request. Relations Office via the contact page at the site www.bpi.pt, by telephone (22 607 33 37), e-mail ([email protected]), fax (22 600 47 38) or by letter (Rua Tenente Valadim, 284, 4100-476 Porto).
8.2. Representative for Market Relations Mr. Rui de Faria Lélis is Banco BPI representative for Market Relations.
8.3. Use of the new information technologies in the disclosure of financial information and preparatory documents for General Meetings Institutional site – www.bpi.pt BPI has a site (www.bpi.pt) dedicated to the dissemination of information about the Group. The site, which is available in Portuguese and English, was widely used in 2002 for disclosing important facts for the market. In the case of the events «General Meetings», «Distribution of Dividends» and «Capital Increase», specific web pages were created for disseminating more detailed information concerning these.
The site also contains general information about the BPI Group, such as news, governing bodies, historical milestones, corporate governance, shareholder structure, distribution channels and financial information, in particular, the reports and accounts, press releases (including the disclosure of results), presentations, information about Banco BPI’s business operations, financial indicators, rating classifications and events calendar.
The number of pages viewed on the site www.bpi.pt in 2002 was three million, while the site was visited 427 thousand times.
220 Banco BPI | Annual report 2002 9. BANCO BPI SHARE PERFORMANCE AND DIVIDEND POLICY In the chapter entitled "Banco BPI Shares", a detailed account is as to ensure comparability. presented of the stock market behaviour of Banco BPI shares, which includes figures relating to earnings per share, dividends 9.1. Banco BPI share performance paid, shareholders' returns, liquidity data and stock market The graph presented below depicts Banco BPI's share price capitalisation and market appreciation indicators for the last trend in 2002 as well as the relevant communication flow to the five years. These historical series have been adjusted for market. The market prices are adjusted for the capital increase important events (capital increases and stock splits) so which took place in May 2002.
Trend in Banco BPI’s share price in 2002 Communication of important facts to the market € 1 2/3 4 5 6 7 8 9 10/11/12 13 14 2.80
2.60 Annual variation +1.5% 2.40 2.18 2.20
2.15 2.00
1.80
1.60 January February March April May June July August September October November December
Communication of important facts to the market Event Date event communicated 1st stock exchange session Event No. to the market after communication 1 07 Feb 02 08 Feb 02 Disclosure of earnings relating to 2001 2 22 Feb 02 25 Feb 02 Announcement of proposed dividend payment and share capital increase 3 25 Feb 02 26 Feb 02 Notice of the General Meeting 4 13 Mar 02 14 Mar 02 Announcement of the new strategic objectives for the three-year period 2002 / 2004 5 18 Mar 02 19 Mar 02 Sale of a 5.6% shareholding in Brisa to Acesa 6 22 Mar 02 25 Mar 02 Banco BPI acquires from ACESA a 10% shareholding in Auto-Estradas do Atlântico, raising its stake to 20% 7 03 Apr 02 04 Apr 02 Decisions and results of the Shareholders' General Meeting 8 16 Apr 02 17 Apr 02 BPI discloses the composition of its governing bodies for the three-year period 2002 / 2004 9 24 Apr 02 26 Apr 02 Release of earnings for the 1st quarter of 2002 10 25 Jul 02 26 Jul 02 Release of earnings for the 1st half of 2002 11 25 Jul 02 26 Jul 02 BPI informs the market about the BPI Group's activity in Angola 12 25 Jul 02 26 Jul 02 Announcement of the BPI Group's proposed reorganisation 13 24 Oct 02 25 Oct 02 Release of earnings for the 3rd quarter of 2002 14 08 Nov 02 11 Nov 02 The BPI Group's proposed reorganisation is unanimously approved at a Shareholders' General Meeting Notes: a) The above communications were sent to the CMVM for publication via the information dissemination system on the Internet; b) 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; c) The share prices shown in the chart have been adjusted for the capital increase realised in May 2002.
9.2. Dividend policy The essential elements of the BPI Group's dividend policy are: – fixing the dividend per share in adjusted terms by taking into account capital increases (in cash or by the incorporation of – the Group's consolidated net profit serves as the basis for reserves) and stock splits. calculating the dividend payment;
– maintenance of a historical pay-out of not less than 30%, while retaining earnings that ensure the availability of the financial resources required for the Group's growth;
Annexes | The BPI Group’s Corporate Governance Report 221 10. APPENDIX OF THE BPI GROUP’S CORPORATE Sociéte Monegasque de Banque Privée, Bolsa de Barcelona, E-lacaixa, GOVERNANCE REPORT Caixabank Banque Privée (Suïsse), Iberclear, Bolsas y Mercados Españoles - Sociedad Holding de Mercados y Sistemas Financieros, S.A. 10.1. Other management or supervisory positions occupied by members of Banco BPI's Management Board in other Isidro Fainé Casas, aged 60, is Director General of Caixa de Ahorros y companies Pensiones de Barcelona, "la Caixa", Chairman of Acesa Infraestructuras, S.A., Inversiones Autopistas, S.L. and Deputy-Chairman of Telefónica, S.A., and Artur Santos Silva, aged 61, has been performing executive functions at the Águas de Barcelona, S.A. He is also member of the Management Boards of BPI Group for 21 years. He is Chairman of the Management Boards of Banco Gas Natural, S.A., Sociedad de Aparcamientos de Barcelona, S.A. (Saba), Português de Investimento, SA, Banco de Fomento, SARL (Angola), Banco Inmobiliaria Colonial, S.A. (Incosa), Caixaholding, S.A. – Sociedad de Fomento, SARL (Mozambique), Banco BPI Cayman Ltd, BPI Madeira Unipersonal, Caixabank Andorra and Caixabank France. SGPS, SA and Inter-Risco – Sociedade de Capital de Risco, SA. He is also a director of Viacer – Sociedade Gestora de Participações Sociais, Lda. João Sanguinetti Talone, aged 79, does not perform other functions at other companies. He is a member of the Management Board of Banco BPI, S.A. Carlos da Câmara Pestana, aged 71, is a member of the Management Board of Banco Itaú, S.A. (Brazil), member of the Management Board of Itaúsa José Alberto Ferreira Pena do Amaral, aged 47, has been performing Portugal, SGPS, S.A. (Portugal), Deputy-Chairman of the Management Board executive functions at the BPI Group for 16 years. He is Chairman of the of Banco Itaú Europa, S.A. (Portugal), member of the Board of Directors of Management Board of Eurolocação – Comércio e Aluguer de Veículos e Itaúsa Madeira - Investimentos, SGPS, Lda, member of the Board of Equipamentos, SA, member of the Management Boards of BPI Madeira, Directors of IPI - Itaúsa Portugal Investimentos, SGPS, Lda, member of the SGPS and Companhia de Seguros Allianz Portugal, SA. He is also a Director Board of Directors of Itaú Europa, SGPS, Lda and member of the Board of of BPI Locação de Equipamentos, Lda and BPI Rent – Comércio e Aluguer Directors of Cashedge - Consultores e Serviços, Lda. de Bens , Lda.
Fernando Ulrich, aged 50, has been performing executive functions at the Klaus Dührkop, aged 50, is Executive Deputy-Chairman of the Management BPI Group for 19 years. He is Deputy-Chairman of the Management Boards Board of Allianz, AG and Member of the Management Boards of RAS (Italy), of Banco Português de Investimento, S.A. and Banco de Fomento, SARL Lloyd Adriatico (Italy), Allianz Portugal, S.A., Allianz Greece, Assurances (Mozambique); Chairman of the Management Boards of BPI Capital Finance Federales (France) and Koc Allianz (Turkey). Limited, BPI Fundos – Gestão de Fundos de Investimento Mobiliário, S.A., BPI Global Investment Fund Management Company, S.A., BPI Pensões – Manuel Ferreira da Silva – aged 45, has been performing executive functions Sociedade Gestora de Fundos de Pensões, S.A., BPI Vida – Companhia de at the BPI Group for 19 years. He is a Member of the Management Boards of Seguros de Vida, S.A. and Solo – Investimentos em Comunicação, SGPS, SA. Banco Português de Investimento, S.A., Inter-Risco, Sociedade de Capital de He is also a member of the Management Boards of Banco BPI Cayman, Ltd, Risco, S.A. and BPI Madeira SGPS, SA. Banco de Fomento, SARL (Angola), BPI Madeira SGPS, S.A., Companhia de Seguros Allianz Portugal, S.A., Inter-Risco – Sociedade de Capital de Risco, Manuel Soares de Oliveira Violas, aged 44, is the Chairman of the SA, Impresa-SGPS, S.A. and SIC – Sociedade Independente de Management Boards of Violas – SGPS, S.A., Cotesi – Companhia de Têxteis Comunicação, S.A. In addition, he is a non-executive member of the Sintéticos, S.A., Solverde – Sociedade de Investimentos Turísticos da Costa Management Boards of Portugal Telecom, S.A. and PT Multimédia, S.A. Verde, S.A., Sociedade Imobiliária da Praia da Rocha, S.A., I.I.I. – Investimentos Industriais e Imobiliários, S.A., Corfi - Organizações Industriais Ruy Octávio Matos de Carvalho, aged 70, is the Chairman of the Audit Board Têxteis Manuel de Oliveira Violas, S.A. and Clip – Colégio Luso Internacional of EFACEC, Deputy-Chairman of Yura International and Vittoria Capital and do Porto. He is also Deputy-Chairman of the Oporto Golf Club and member of member of the Management Board of João Marques Pinto – Investimentos the General Board of the Associação Empresarial de Portugal. Imobiliários, S.A. Maria Celeste Hagatong, aged 50, has been performing executive functions Alfredo Costa Rezende de Almeida, aged 69, is Chairman of the at the BPI Group for 17 years. She is a non-executive member of the Management Boards of Arco-Têxteis – Empresa Industrial de Santo Tirso, Management Boards of Banco Português de Investimento, S.A. and CVP - S.A., and Arco-Fio – Fiação, S.A., Deputy-Chairman of the Management Sociedade de Gestão Hospitalar, S.A. She is also a Member of the Board of Arcotinto – Tinturaria, S.A., member of the Management Board of Management Board of BPI Madeira SGPS, S.A. Fábrica do Arco – Recursos Energéticos, S.A and Member-Director of Casa de Ardias - Sociedade Agrícola e Comercial, Lda. Riunione Adriática di Sicurtá, represented by Diethart Breipohl, aged 63, Member of the Supervisory Boards of Allianz AG (München), Beiersdorf AG António Domingues, aged 46, has been performing executive functions at the (Hamburg), Continental AG, (Hannover), Karstadt Quelle AG (Essen), Mg BPI Group for 13 years. He is Chairman of the Management Board of Technologies AG, (Frankfurt), KM Europa Metal AG (Osnabrück) and member Crediuniverso – Serviços de Marketing, SA. He is also a member of the of the Management Boards of Crédit Lyonnais (Paris), Assurances Générales Management Boards of Banco de Fomento, SARL (Angola), Banco BPI de France AGF (Paris), Banco Popular Español (Madrid) and Euler & Hermes Cayman, Ltd, BPI Capital Finance Limited, BPI Madeira SGPS, SA, (Paris). Digitmarket – Sistemas de Informação, SA, SIBS – Sociedade Interbancária de Serviços, SA and Unicre – Cartão Internacional de Crédito, SA. Roberto Egydio Setúbal – aged 48, is Deputy-Chairman of the Management Board, Director Chairman, Director General and member of the International António Farinha Morais, aged 51, has been performing executive functions at Consultative Council of Banco Itaú Holding Financeira, S.A., Director the BPI Group following the acquisition of the former BFE in 1996. Chairman and Director General of Banco Itaú S.A., Executive Director Previously, he had been working at BFE since 1978. He is a member of the Deputy-Chairman of Itaúsa - Investimentos Itaú, S.A., Chairman of the Management Boards of BPI Global Investment Fund Management Company, Management Boards and Director Chairman of Banco Bemge, S.A., Banco S.A. and BPI Fundos – Gestão de Fundos de Investimento Mobiliário, S.A. Beg S.A., Banco Banestado, S.A., Itaú Banco de Investimento, S.A., CIA Itauleasing de Arendamento Mercantil, Investimentos Bemge S.A., Itauint Armando Costa Leite de Pinho, aged 68, is Chairman of the Management Itaú Participações Internacionais S.A. and Itaú Administradora de Consórcios Boards of Arsopi – Indústrias Metalúrgicas Arlindo S. Pinho, S.A. and Arsopi Ltda. He is Director Chairman of Banco Banerj, S.A., Itaú Capitalização, – Holding, SGPS, S.A., A.P. Invest, SGPS, S.A. He is also Deputy-Chairman S.A., Itaú Previdencia e Seguros, S.A., Itaucard Financeira S.A. Crédito, of the Management Board of Unicer – Bebidas de Portugal, SGPS, S.A., as Financiamento e Investimento, Banco Itaú Europa, S.A., Itau Bank, Ltd. and well as member of the Management Boards of Plurimodus –Sociedade Banco Itaú Buen Ayre, S.A. He is also a Director of Itaúsa Portugal SGPS, Imobiliária, S.A., Pluricasas – Sociedade Imobiliária, S.A., and Pluridomus S.A. Turismo, S.A. He is also a director of Arsopi-Thermal, Equipamentos Térmico, Lda., Tecnocon-Teconologia e Sistemas de Controle, Lda., Equitrade- Tomaz Jervell, aged 59, is Chairman of the Board of Directors of Auto-Sueco, Equipamentos e Tecnologia Industrial, Lda., Acinox-Acessórios Inoxidáveis, Lda., Chairman of the Management Boards of Norbase, SGPS, S.A., Auto- Lda., Viacer- Sociedade Gestora de Participações Sociais, Lda. and IPA – Sueco (Angola) S.A.R.L., Auto-Sueco (Minho), S.A., Soma, S.A., Biosafe, Imobiliária Pinhos & Antunes, Lda. S.A., Vellar SGPS, S.A. and member of the Board of Directors of Auto-Sueco (Coimbra), Lda. He is also the Consul of Sweden and Norway. Caixa Holding S.A. Sociedade Unipersonal – represented by Fernando Ramirez, aged 49, Deputy Director General of Caja de Ahorros y Pensiones de Barcelona, "la Caixa", Chairman of the Management Board of Invercaixa Holding, S.A., Deputy-Chairman of the Management Board of MEFF, Sociedad Holding de Productos Financieros Derivados and member of the Management Boards of Servicio de Compensación y Liquidación de Valores,
222 Banco BPI | Annual report 2002 Trading information
Management Board Members’ shareholdings in Banco BPI, S.A.1
Shares
Management Board Members Shareholding Acquired Subscribed Sold Total on on 31-12-01 31-12-02
Artur Santos Silva 569 750 55 280 114 726 739 756 Carlos da Câmara Pestana 290 000 53 230 43 230 300 000 Fernando Ulrich 264 325 49 178 57 544 88 000 283 047 Ruy de Carvalho 119 905 21 334 21 147 120 092 Alfredo Rezende de Almeida 1 510 000 16 908 203 093 50 000 1 680 000 António Seruca Salgado2 4 881 21 340 3 780 30 001 António Domingues 4 306 34 472 6 870 45 648 Armando Leite de Pinho 4 969 743 912 219 5 881 962 Fernando Ramirez 4 148 734 4 882 Isidro Fainé Casas 0 0 João Sanguinetti Talone 10 173 24 1 803 12 000 José Pena do Amaral 34 101 16 416 8 214 58 731 Klaus Dührkop 0 0 Manuel de Oliveira Violas 26 772 4 914 31 686 Diethart Breipohl 4 148 734 4 882 Roberto Egydio Setúbal 0 0 Tomaz Jervell 7 256 1 285 8 541 Maria Celeste Hagatong 59 340 4 945 11 388 5 000 70 673 Manuel Ferreira da Silva 12 000 19 895 5 854 37 749 António Farinha Morais3 26 2914 26 291 1) Succeeded BPI – SGPS, S.A. following the merger by incorporation (notarial deed signed on 19 December 2002). 2) Renounced office with effect from 1 December 2002. 3) Co-opted to fill vacancy left by António Seruca Salgado’s renouncement: the registration process with the relevant authorities is currently being attended to. 4) Shares held on the date he was co-opted (11 December 2002). Notes: a) all the prices indicated are price per share. b) the subscription for shares in the capital increase from €645 625 000 to €760 000 000 was effected at the price of €1.75 per share. c) RVA – Share Incentive Scheme reserved for BPI Group employees.
ARTUR SANTOS SILVA – Acquired on 29 April 2002, under the RVA scheme, attributed 195 417 and 10 113 options to buy BPI shares, respectively. 55 280 shares at an exercise price per share of €2.58, a portion of which is subject to a condition subsequent in terms of the respective RUY DE CARVALHO – Subscribed for 21 334 shares in BPI – SGPS, S.A.’s regulations. Subscribed for 114 726 shares in BPI-SGPS, S.A.’s capital capital increase, of which he was allotted 92. Sold: on 27 May 2002, increase, of which he was allotted 4 000. Under the RVA scheme, on 19 295 shares at a price of €2.46 and on 29 May 2002, 1 852 shares 21 March 2002 and following BPI SGPS’s capital increase, he was at a price of €2.48. attributed 219 664 and 11 367 options to buy BPI shares, respectively. ALFREDO REZENDE DE ALMEIDA – Subscribed for 203 093 shares in BPI – CARLOS DA CÂMARA PESTANA – Subscribed for 53 230 shares in BPI – SGPS, SGPS, S.A.’s capital increase, of which he was allotted 7 082. Bought: S.A.’s capital increase. Sold: on 3 June 2002, 10 000 shares at a price On 3 September 2002, 1 907 shares at a price of €2.21; on 30 of €2.47; on 4 June 2002, 5 000 shares at a price of €2.45, on 5 June September 2002, 3 000 shares at a price of €1.99 and 2 000 shares at 2002, 10 000 shares at a price of €2.50 and on 7 June 2002, 18 230 a price of €1.98; on 18 de October 2002, 847 shares at a price of shares at a price of €2.46. €1.82 and on 22 October 2002, 9 153 shares at a price of €1.81. Sold: on 14 de May 2002, 10.000 shares at a price of €2.43, and on 4 June IPI Itaúsa Portugal SGPS, Lda., of which he is a member of its 2002, 40 000 shares at a price of €2.53. Management Board, subscribed for 17 776 127 shares in BPI – SGPS, S.A.’s capital increase. On 31 December 2002, this company held Arcotêxteis – Empresa Industrial de S. Tirso, S.A., of which he is 114 619 877 shares. Chairman of its Management Board, subscribed for 171 920 shares in BPI – SGPS, S.A.’s capital increase, of which it was allotted 5 995. Sold: FERNANDO ULRICH – Acquired on 29 April 2002, under the RVA scheme, on 23 January 2002, 100 000 shares at a price of €2.50; on 25 January 49 178 shares at an exercise price per share of €2.58, a portion of which 2002, 1 950 shares at a price of €2.58, 100 000 at a price of €2.55 is subject to a condition subsequent in terms of the respective and 100 000 shares at a price of €2.52; 28 January 2002, 800 shares regulations. Subscribed for 57 544 shares in BPI – SGPS, S.A.’s capital at a price of €2.61, 50 000 shares at a price of €2.59, 48 050 shares increase, of which he was allotted 2 006. Sold: on 9 September, 5 000 at a price of €2.58 and 29 200 shares at a price of €2.61, on 11 shares at a price of €2.26; on 10 September, 5 000 shares at a price of February 2002, 10 000 shares at a price of €2.58, on 14 February €2.24, on 11 September, 5 000 shares at a price of €2.24, on 12 2002, 10 000 shares at a price of €2.62; on 15 February 2002, 10 000 September, 5 000 shares at a price of €2.24, on 13 September, 5 000 shares at a price of €2.64, on 18 February 2002, 9 753 shares at a shares at a price of €2.24, on 11 November, 3 455 shares at a price of price of €2.69, on 19 February 2002, 247 shares at a price of €2.69 €2.04, on 12 November, 6 667 shares at a price of €2.02, 15 078 and on 4 June, 20 000 shares at a price of €2.55. On 31 December shares at a price of €2.03, on 13 November, 12 600 shares at a price of 2002, this company held 1 888 540 shares. €2.01, on 14 November, 12 600 shares at a price of €2.01 and on 15 November, 12 600 shares at a price of €2.02. Under the RVA scheme, on 21 March 2002 and following BPI SGPS’s capital increase, he was
Annexes | Trading information 223 Arcofio – Fiação, S.A. of which he is the Chairman of its Management KLAUS DÜHRKOP – Does not hold shares. Board, subscribed for 53 230 shares in BPI – SGPS, S.A.’s capital increase, of which it was allotted 1 856. On 31 December 2002, this MANUEL DE OLIVEIRA VIOLAS – Subscribed for 4 914 shares in BPI – SGPS, company held 743 230 shares. S.A.’s capital increase, of which he was allotted 171.
Arcotinto – Tinturaria, S.A. subscribed for 69 750 shares in BPI – SGPS, Violas-SGPS, S.A, of which he is member of its Management Board, S.A.’s capital increase, of which it was allotted 2 432. On 31 December subscribed for 3 372 579 shares in BPI – SGPS, S.A.’s capital increase, 2002 this company held 849 750 shares. of which he was allotted 117 605. Sold on 29 May 2002, 65 228 shares at a price of €2.50. On 31 December 2002, this company held ANTÓNIO SERUCA SALGADO – A correction has been made to the balance 21 681 062 shares. indicated in the previous Report. Acquired on 29 April 2002, under the RVA scheme, 21 340 shares valued at €2.58, a portion of which is DIETHART BREIPOHL – Subscribed for 734 shares in BPI – SGPS, S.A.’s subject to a condition subsequent, in terms of the respective regulations. capital increase. Subscribed for 3 780 shares in BPI – SGPS, S.A.’s capital increase. Under the RVA scheme, on 21 March 2002 and following BPI SGPS’s RAS International NAVE, which nominated him to BPI – SGPS, S.A.’s capital increase, he was attributed 84 796 and 4 388 options to buy BPI Management Board, subscribed for 8 870 369 shares in BPI – SGPS, shares, respectively. S.A.’s capital increase. On 31 December 2002, this company held 65 659 233 shares. ANTÓNIO DOMINGUES – Acquired on 29 April 2002, under the RVA scheme, 34 472 shares at an exercise price per share of €2.58, a portion of ROBERTO SETÚBAL – Does not hold any shares. which is subject to a condition subsequent in terms of the respective regulations. Subscribed for 6 870 shares in BPI – SGPS, S.A.’s capital TOMAZ JERVELL – Subscribed for 1 285 shares in BPI-SGPS, S.A.’s capital increase. Under the RVA scheme, on 21 March 2002 and following BPI increase. SGPS’s capital increase, he was attributed 136 978 and 7 089 options to buy BPI shares, respectively. Norsócia SGPS, S.A., of which he is a member of its Management Board, sold in the capital increase, the subscription rights attaching to the shares ARMANDO LEITE DE PINHO – Subscribed for 912 219 shares in BPI – SGPS, it held. On 31 December 2002, this company held 6 018 395 shares. S.A.’s capital. Auto Maquinaria Tea Aloya, of which he is a member of its Management Board, sold in the capital increase the subscription rights attaching to the Arsopi – Indústrias Metalúrgicas Arlindo S. Pinho, S.A. of which he is the shares it held. On 31 December 2002, this company held 6 037 256 Chairman of its Management Board, subscribed for 348 678 shares in shares. BPI-SGPS, S.A.’s capital increase. On 31 December 2002 this company held 2 248 271 shares. MARIA CELESTE HAGATONG – Acquired on 29 April 2002, under the RVA scheme, 4 945 shares at an exercise price per share of €2.62. FERNANDO RAMIREZ – Subscribed for 734 shares in BPI – SGPS, S.A.’s Subscribed for 11 388 shares in BPI – SGPS, S.A.’s capital increase. capital increase. Sold on 01 August 2002, 5 000 shares at a price of €2.35. Under the RVA scheme, on 21 March 2002 and following BPI SGPS’s Corporació de Participacions Estrangeres, S.L. subscribed for 14 269 701 capital increase, she was attributed 78 586 and 4 067 options to buy shares in BPI – SGPS, S.A.’s capital increase. On 15 July 2002, BPI shares, respectively. Corporació, owned 100% by Caixa Holding, S.A., Sociedad Unipersonal, was absorbed by the latter by way of merger. Consequently, Caixa Holding MANUEL FERREIRA DA SILVA – Acquired on 29 April 2002, under the RVA now holds all the BPI – SGPS, S.A. shares which belonged to the now- scheme, 19 895 shares at an exercise price per share of €2.58, a portion -extinct absorbed company, bringing its shareholding in BPI’s capital at of which is subject to a condition subsequent in terms of the respective 31 December to 113 956 379 shares. regulations. Subscribed for 5 854 shares in BPI – SGPS, S.A.’s capital increase, of which he was allotted 204. Under the RVA scheme, on 21 ISIDRO FAINÉ CASAS – Does not hold any shares. March 2002 and following BPI SGPS’s capital increase, he was attributed 79 056 and 4 091 options to buy BPI shares, respectively. Caixa Holding, S.A. Sociedade Unipersonal, of which he is a member of its Management Board, subscribed for 2 879 83 shares in BPI – SGPS, ANTÓNIO FARINHA MORAIS – Made no transactions. S.A.’s capital increase. On 15 July 2002, Caixa Holding which held 100% of Corporació de Participacions Estrangeres, S.L., absorbed this company by way of merger. Consequently, Caixa Holding now holds the RVA 2001 – Options BPI – SGPS, S.A. shares which belonged to the absorbed company. Accordingly, on 31 December 2002, this company held 113 956 379 The options to buy the BPI shares attributed to the shares. executive directors under the RVA 2001 scheme have the
JOÃO SANGUINETTI TALONE – Acquired on 9 May 2002, 24 shares at a price following characteristics: of €2.39. Subscribed for 1 803 shares on 21 May 2002 in BPI – SGPS, S.A.’s capital increase. – attribution date: 21 March 2002;
JOSÉ PENA DO AMARAL – Acquired on 29 April 2002, under the RVA scheme, – number of shares acquired for each option held: 1; 16 416 shares at an exercise price per share of €2.58, a portion of which is subject to a condition subsequent in terms of the respective – exercise price: €2.67 per share (adjusted to €2.54 per regulations. Subscribed for 8 214 shares in BPI – SGPS, S.A.’s capital increase. Under the RVA scheme, on 21 March 2002 and following BPI share following the capital increase); SGPS’s capital increase, he was attributed 65 228 and 3 376 options to buy BPI shares, respectively. – exercise period: 21 March 2003 to 21 March 2007;
– value of each option: €0.65.
224 Banco BPI | Annual report 2002 Audit Board Members’ shareholdings in Banco BPI, S.A. Shares
Audit board Shareholding Acquired Subscribed Sold Held on on 31-12-01 31-12-02
Jorge de Figueiredo Dias 00000 José Ferreira Amorim 3 773 717 448 076 758 207 0 4 980 000 Statutory auditors: Magalhães, Neves & Associados 00000 Note: the prices indicated are those per share. The subscription of shares in the capital increase from €645 625 000 to €760 000 000 was effected at a price of €1.75 per share.
JORGE DE FIGUEIREDO DIAS – Does not hold any shares. 6 100 shares at a price of €2.15, on 23 September, 10 000 shares at a price of €2.10 and on 30 September, 10 000 shares at a price of €1.98. JOSÉ FERREIRA AMORIM – Acquired: on 11 January 2002, 10 000 shares at Subscribed for 758 207 shares in BPI SGPS’s capital increase. a price of €2.20; on 12 March 2002, 20 000 shares at a price of €2.60, on 4 April, 50 000 shares at a price of €2.70 and by inheritance MAGALHÃES NEVES & ASSOCIADOS – Do not hold any shares. 276 976 shares, on 24 July 2002, 40 000 shares at a price of €2.35; on 6 August, 25 000 shares at a price of €2.18, on 18 September 2002,
Annexes | Trading information 225 Appendices
DEFINITIONS, ACRONYMS AND ABBREVIATIONS
DEFINITIONS
BPI Group entities – some definitions used Banco Português de Investimento / Banco Português de Investimento, S.A. / / BPI or the Banco de Investimento, if the framework so permits BPI Group / BPI, if the framework so permits The group's investment bank. The financial group with format defined on pages 20, 138, 139 and 140.
BPI SGPS / BPI – SGPS, S.A. Banco BPI / Banco BPI, S.A. / the Bank, the Commercial Bank, if the framework so permits The entity heading the BPI Group until 20 December 2002, responsible for the holding and strategic command functions. At 21 December 2002, incorporated Head of the BPI Group and responsible for conducting the Commercial Banking Banco BPI by merger, changed its object to "bank" and its name to Banco BPI. business; listed on the stock exchange.
ACRONYMS
Entities
BIS Bank of International Settlements IRC Imposto sobre o Rendimento das Pessoas BVLP Bolsa de Valores de Lisboa e Porto (Lisbon and Colectivas (corporate income tax) Oporto Stock Exchange) LIBOR London Interbank Offered Rate CMVM Comissão do Mercado de Valores Mobiliários LTR Long Term Rental (Securities Market Commission) MIB30 Shares index ECB European Central Bank Nasdaq-100 Shares index EFTA European Free Trade Association OMX Shares index EIB European Investment Bank OTC Over-the-counter EMU Economic and Monetary Union OT Obrigações do Tesouro de taxa fixa (Fixed yield EU European Union government bonds) FED Federal Reserve System OTRV Obrigações do Tesouro de Rendimento Variável IAPMEI Instituto de Apoio às Pequenas e Médias (Variable yield government bonds) Empresas e ao Investimento (Portuguese institute POE Plano Operacional da Economia (Economy for the support of small and medium-sized Operating Plan) companies) POS Public Offer for Sale SIBS Sociedade Interbancária de Serviços (Interbank PPA Plano Poupança Acções (equities savings plan) Services Society) PPR Plano Poupança Reforma (retirement savings plan) PPR/E Plano Poupança Reforma/Educação Miscellaneous (retirement/education savings plan) PSI-20 Shares index ACTV Acordo Colectivo de Trabalho Vertical (Vertical SGPS Sociedade Gestora de Participações Sociais Collective Employment Agreement) (Investment Holding Company) AEX25 Shares index SME Small and medium-sized enterprises BEL20 Shares index SMI Shares index CAC 40 Shares index SROC Sociedade de Revisores Oficiais de Contas CRM Customer Relationship Management (Portuguese Statutory Auditing Firm) DAX Shares index USA United States of America DJIA Shares index ECBS European Central Banks' System FTSE Shares index Financial FRIE Fundo de Restruturação e Internacionalização Empresarial (Fund for Business Restructuring and EPS Earnings per share Internationalisation) ROA Return on Assets Ibex Geral Shares index ROE Return on Equity IPO Initial Public Offering ROI Return on Investment VaR Value at Risk
226 Banco BPI | Annual report 2002 ABBREVIATIONS
Units Other €, EUR euro Dec. December Bi.€ billions of euro e.g. exempli gratia m.€, m. euros – th. thousands of euro etc. et caetera M.€, M. euros millions of euro Lda. limited b.p. basis points m2 square metre p.p. percentage points no. number 103 thousand neg. negative 106 million Net Internet Billion thousand million S.A. Public held company Trillion thousand billion un. unit v. vide (see) Conventional signs vs. versus 1 . decimal point /2 one half 1 % percentage /4 one quarter 3 ∆ variation /4 three quarters .., nd – .., na not available 0 nil or negligible -, nr irrelevant < minor than > greater than
Currencies EUR euro JPY Japanese yen GBP Pound sterling (UK) USD United States dollar
Annexes | Appendices 227 GLOSSARY
American Depositary Receipts (ADR) – negotiable certificates of deposit, Economic provisions – term given to the estimate of actual (or almost issued by US banks, representing the shares held in custody of non-US- actual) effective losses arising from loan defaults. They are used to assess -based companies. These certificates entitle the holders thereof to the adequacy of accounting provisions. dividends and capital gains. Emerging markets – financial markets with strong growth potential and Benchmark – a widely-accepted market reference value used in the evolving rapidly to higher levels of maturity and development. These valuation of securities (assets) and the assessment of an investment’s markets are essentially located in Asia and South America. performance. Equity method – method used for recognising an investment in the BIS ratio – an internationally-accepted capital adequacy ratio, consolidated accounts. The investment is recorded at the amount of the corresponding to the relationship between total own funds and the total of investor company’s direct or indirect proportional interest in the investee assets and off-balance sheet items, weighted according to their respective company’s net assets and net income. risk (credit risk attached to the investment portfolio, market risks attached to the dealing portfolio). The minimum figure prescribed is 8%. Euribor – the average of the interest rates supplied by a panel comprising the European Union’s 57 largest banks. This benchmark rate is calculated Bond with cap or floor – variable-interest rate bonds with a coupon called and published daily. a cap (floor) which can be traded separately. The cap is an agreement in terms of which the issuer sets, in exchange for a premium (corresponding Forward contract (currency) – an agreement between two parties in terms to the implicit interest rate in the cap added to the bond issue’s interest of which a rate of exchange is fixed for a specified future date and rate), a maximum rate of interest for the issue. The floor is an agreement amount of the currency concerned. in terms of which the issuer sets, in exchange for a premium (corresponding to the implicit interest rate in the floor deducted from the Forward rate agreements (FRA) – an agreement between two parties in bond issue’s interest rate), a minimum interest rate. terms of which the rate of interest is fixed for a specified future date, amount and maturity period. Callable bond – a bond which is redeemable at the issuer’s option under predetermined conditions (time period for exercising the option, price, Futures contract – a standard contract traded on a stock exchange in etc.). The option attached to the bond cannot be traded separately from terms of which the two parties fix the price of an underlying asset for the bond. The callable bond is commonly associated with a step-up which a specified future date. provides for an increase in the interest rate if the agreed-to early redemption option is not exercised before a future date. Guaranteed capital / limited-risk structured product – variable-income debt securities, the yield on which is indexed wholly or partially to the Call-option – an agreement between two parties in terms of which the price of equities or to equity indices. Where the prices of assets which buyer acquires, against payment of a monetary consideration (premium), serve as the index benchmark become negative, the investor is guaranteed the right to buy from the seller at a specified future date (or up to a at maturity date the repayment of the total capital invested (guaranteed specified future date) the underlying security at an agreed price. capital) or the limiting of any losses to a predetermined amount (limited risk). Capital rotation – the relationship between the number of shares traded and the average number of shares listed on the stock exchange. Hedging – the strategy adopted by a trader to minimise the potential risk of adverse changes in a given asset’s market price. A perfect hedging Country-risk – the probability of loss arising from exposure of assets and operation eliminates any future capital loss or gain. off-balance sheet items as a result of a default in the contracted financial obligations by a counterparty who is resident in a country which, owing Investment grade – classification attributed to all those bond issuers to its political and economic situation, is considered to bear an element whose credit rating is equal to or higher than BBB or Baa. of risk. Market-maker – the member of a stock exchange who undertakes the Credit rating – classification attributed to an institution by a specialised function of promoting liquidity by maintaining bid and asked prices for and independent entity (rating agency) with the object of assessing the specified securities at which these securities are bought and sold (under institution’s capacity to meet its short or long-term obligations. certain conditions).
Day-trade – buying and selling of negotiable securities during the course Mismatch – Disparity between the maturity and interest-payment periods of the same stock market session so that at the end of the trading day, for interest-earning assets on the one hand, and deposits and other the investor has no open position, nor has any change taken place in the interest-bearing liabilities, on the other. One of the major concerns of a composition of his portfolio. credit institution’s treasury management (usually interest-earning assets have longer maturity periods than interest-bearing liabilities) is reducing Disability decreases – reduction in the calculated amount of pension the risk exposure associated with adverse changes in interest rates and obligations for current employees’ past services resulting from the ensuring that there are adequate funds to meet the payment of liabilities recourse to, in calculating these amounts, the probability of current as and when they fall due. employees ceasing to remain on the payroll due to disability, that is, before the normal retirement period. Pension obligations arising from Non-voting preference share – a security representing a share in the disability are lower than those relating to normal retirement due to old equity of the issuing company. It entitles the holder (i.e. the preference age, given that old-age and disability pensions are defined as a shareholder) to receive a dividend (at a predetermined rate) and to progressive percentage of salary depending on the number of years share proportionately in the company's residual assets in the event of service. liquidation, in both cases in precedence to the holders of ordinary shares.
228 Banco BPI | Annual report 2002 Notional value (of a derivative) – the current price on the spot market of Start-up – new or very recent company which is normally involved in the asset underlying the derivative financial instrument. modern/emerging business ventures, and which are almost always financed by venture/development capital companies and by recourse to Ordinary share with voting rights – a security representing a share in the capital market. the equity (i.e. net assets) of the issuing company. The principal rights conferred on the holder (i.e. the shareholder) are the entitlement to Stop-loss – definition of the price at which a financial asset must be sold receive a dividend, to participate in and vote at Shareholders’ General (by reference to market prices) with the object of either limiting losses in Meetings, and to share proportionately in the company's residual assets the event of an asset depreciating or protecting gains already made. in the event of liquidation. Subordinated bond (long-term debt) – a debt security, the redemption of Perpetual bonds – a debt security having no maturity date and which does which in the event of the issuer’s bankruptcy or liquidation, is dependent not confer upon the holder the right to repayment of the nominal value of upon the prior repayment of all non-subordinated (i.e. senior) creditors (or the debt. at least certain types of creditors).
Placement syndicate – a group of financial entities which jointly organises Subscription reserved for shareholders – share capital increase, either and places an issue of negotiable securities. by incorporation of reserves or against a cash payment, reserved for shareholders. In a subscription reserved for shareholders, the issue Private Equity – form of financing companies during the start-up of their price is normally set below the ruling market price. business, in a strong growth phase or undergoing restructuring, by means of a participating interest in their capital, as a general rule with a view to Swap (currency / interest rate) – an agreement between two parties in the subsequent dispersion of equity on the capital market. terms of which they exchange (swap) between them, for a specified amount and period of time, periodic payments of fixed rate for floating Project Finance – investment in which the debt service is financed by the rate payments, in the case of interest rate swaps, or one currency for project own cash flows; also used to define this type of financing. another currency, in the case of currency swaps. Usually one of the counterparties is a financial institution acting as an intermediary. Put-option – an agreement between two parties in terms of which the buyer of the contract acquires, against payment of a monetary Traditional warrant (shares) – negotiable contract that confers upon the consideration (premium), the right to sell to the seller of the put-option holder thereof the right to convert into shares of the issuing company contract at a specified future date (or up to a specified future date) the under predetermined conditions (conversion period, conversion prices underlying security at the price specified in the contract. etc.). Conversion normally implies an increase in the company’s share capital. The most common situation is the concurrent issue of bonds, Repurchase agreement – an agreement between the two parties to a thereby making the issue more attractive. securities transaction, whereby the seller undertakes to repurchase the securities at a specified price and date. The operation involves the Treasury bills – short-term public-debt bonds issued by the Treasury, with advancing of funds (usually for a short term) whereby the security serves a maturity period of less than one year. This instrument is issued at a as collateral, yielding an implicit rate of interest. It is an instrument discount and redeemed at its nominal value on maturity date. commonly used by central banks in interbank money market operations. Underwriting – an agreement between the issuer and the financial Reserves incorporation – share capital increase (i.e. bonus or institutions responsible for selling (placing) the negotiable securities capitalisation issue) effected by way of the transfer of undistributed object of the issue, in terms of which the underwriting financial profits from reserves to subscribed capital. Since the issue of the new institutions are committed to purchase, against payment, any unsold shares to shareholders does not entail any payment on the part of securities not subscribed for in the placement, thereby eliminating the shareholders, this operation has no effect on the company’s share capital risk of the operation being unsuccessful. or net worth. Value at Risk (value at market risk) – corresponds to the maximum Separate warrant (shares) – negotiable contract issued by financial potential loss in the value of assets held resulting from an unfavourable institutions that confers upon the holder thereof the right to purchase direction in markets and prices over a predetermined time span. The (call warrant) or the sell (put warrant) a financial assets, known as the value-at-risk is calculated by way of models which are based on specific underlying assets, under predetermined conditions (conversion period, assumptions, namely, with regard to the distribution of probabilities of the conversion prices etc.). The most common underlying assets are equities price variations, correlations between price variations and statistical and equity indices. confidence level.
Solvency ratio – (Bank of Portugal solvency ratio rules) – relationship Volatility – a measure of the degree to which the market price of assets between total own funds and the total of assets and off-balance sheet fluctuates, namely, from the viewpoint of extent and frequency. items, weighted according to their respective risk (credit risk attached to the investment portfolio, market risks attaching to the dealing portfolio). Write-offs – accounting write-off of non-performing loans recorded as The minimum figure prescribed is 8%. It aims at ensuring that the assets, which have been provided for in full and in respect of which there institution has a minimum of own funds to cover the total potential is no prospect of recovery. The loan is written off directly against the losses stemming from assets and off-balance sheet resources, thereby respective provision account, with the result that this entry has no impact guaranteeing the institution’s ability to satisfy all of its liabilities. It is very in the income statement. similar to the BIS ratio in that it adopts the same principles and methodology, differing only in the treatment given to certain components of own funds and in the calculation of certain assets and off-balance sheet risks.
Annexes | Appendices 229 FORMULARY
Total assets plus disintermediation: Total loans in arrears, for more than 30 days, as % of Customer loans:
Total assets (net)1 + Off-balance sheet Customer resources Loans to Customers and interest in arrears for longer than 30 days x 100 Customer loans (gross) 1) Corrected for duplication of balances.
Provisioning cover for arrear loans: Total Customer resources:
Provisions for loans and interest in arrears + Resources on the balance sheet + Off-balance sheet resources + Provisions for general credit risk x 100 Off-balance sheet customer resources: Loans and interest in arrears for longer than 30 days
Unit trust funds + Retirements savings and equity savings plans + Pension liabilities cover: + Capitalisation insurance Pension funds Operating income from banking: x 100 Pension liabilities with retired and past services Net interest income + Commissions and other operating income (net) + of current employees + Profits from financial operations Data per share: Administrative overheads: Cash flow, net profit or dividend
Personnel costs + Outside supplies and services Weighted average number of shares
Cost-to-income: Book value
Administrative overheads Final number of shares*
Operating income from banking * Adjusted by the effects of Capital increases reserved for Shareholders
Administrative overheads plus depreciation: Weighted average number of shares:
Personnel costs + Outside supplies and services + Depreciation Weighted average number of shares ranking for dividends**
Efficiency ratio: ** Adjusted by the effects of capital increases reserved for Shareholders. It’s assumed that the capital increase occurs in the day the shares start ranking for dividends Administrative overheads + depreciation
Operating income from banking – Profits from financial operations Total shareholder return:
Operating cash-flow: Appreciation of the shares on the stock exchange + Appreciation of the dividends reinvested on shares Operating income from banking – Administrative overheads Price as a multiple of... Net profit attributable to BPI Group Shareholders: Closing adjusted price at 31 December
Profits before taxation – Corporate income tax – Minority Shareholders Cash flow, net profit or Book value per share share of profit + Equity accounted results of subsidiaries Dividend yield (%): Cash flow after taxation: Dividend per share for the year (paid next year) Net profit attributable to BPI Group Shareholders + Depreciation + x 100 + Provisions net of reversals Closing adjusted price at 31 December
Return on average total assets (ROA): Earnings yield (%):
Net profit attributable to BPI Group shareholders Net profit per share x 100 x 100 Weighted (monthly) average total assets (net) Closing adjusted price at 31 December
Return on Shareholders’ equity (ROE):
Net profit attributable to BPI Group Shareholders x 100 Weighted (monthly) average book value
230 Banco BPI | Annual report 2002 METHODOLOGICAL NOTES
CREATING SHAREHOLDER VALUE SHARE INDICATORS The most appropriate measure of shareholder value added is achieved by The "Earnings per share (EPS)" ratio is an extremely important figure conducting an analysis from the shareholder's own perspective. When an when evaluating a particular share investment. investor acquires shares he does so in the expectation that he will secure a capital gain that is higher than that which he would have achieved in an The principal reason for this is the fact that this indicator is, in turn, alternative investment with a similar degree of risk. the denominator of the relationship between the share price and the net income1 attributable to it, otherwise commonly termed P/E or PER ("Price Shareholder’s gain to Earnings Ratio"). The prospective P/E is probably the indicator most Shareholder's gain per share = Selling price - Cost price + Dividend often used by the market when assessing the appeal of a given investment in that it expresses the price at a specific moment and the estimated The shareholder's overall gain is the sum of the capital gain, which future profit flows of the company concerned. results from the share's appreciation on the stock exchange, and the appropriation of the company's earnings in the form of dividends received. In building the EPS indicator, the only matter that has to be resolved is the ascertainment of the number of shares to be used as the denominator Shareholder's rate of return – the weighted average number of shares with dividend rights in issue The rate of return calculation takes into consideration the investment time during the relevant period – in such a manner as to ensure comparability span in order to establish a relationship between the capital employed in of past EPS data. the acquisition of shares and the gain obtained, and permits an analysis to be made of the investment return by comparing this with alternative A number of events can signify that the number of shares has to investment opportunities. be adjusted; the most common are share-capital increases, be it an incorporation of reserves (a bonus/capitalisation issue) or a subscription In the rate of return calculation, given that the cash flows occur at reserved for shareholders (a rights issue). different time intervals, the internal rate of return (IRR) method is utilised. The rate of return is hence the average rate of the investment The fact that the issue price is below the ruling market price (a very period which equates the present value of the incoming flows resulting common procedure) means that the shareholder's right to subscribe from the sale of shares and the dividend paid to the present value of for new shares has an asset-related content that is detachable from the the capital invested. share and negotiable on the market. This constituent element is called the subscription right. CFj ∑ = 0 In practical terms, a share issue reserved for shareholders can, and should (1 + Shareholder's annual average rate of return) (dj-d0) / 365 therefore, be subdivided into an incorporation of reserves (theoretical)2 followed by a share issue at the price which theoretically would be struck CFj – Cash flow at the moment j (incoming flows are registered as positive on the market after the capital increase. figure and outgoing flows as negative figure) dj – which corresponds to the moment j For purposes of determining the weighted average number of shares: d0 – date in relation to which cash flows are converted to present values and corresponds to the moment in which the first capital investment – when an incorporation of reserves takes place, whether theoretical is made (stemming from the above-mentioned subdivision) or real, this should Based on the assumption that all years have 365 days. be deemed to have occurred on the first day of the financial year;
The investment in any particular share produces different rates of return – the number of shares issued at "market price" in a subscription reserved depending on the moment chosen for making the investment and the for shareholders should be weighted on a time basis to reflect the period corresponding disinvestment. during which the proceeds from the capital increase contributed to the year's earnings. Matrix of spreads on a shareholder's nominal annual average return The yield matrix presents various annual average rates of return obtained When the shares issued in a year do not confer any dividend rights in by the BPI shareholder according to the investment time span. respect of that year – only the right to dividends in ensuing years – the appropriate procedure in such circumstances is, for all intents and The shareholder considered makes an initial investment in BPI SGPS purposes, to consider that the share-capital increase took place on the nominative shares with dividend rights. During the investment period first day of the following year, maintaining the basic method outlined he reinvests the dividends in new BPI SGPS shares in the day following above3. their receipt, and participates in all share capital increases and convertible-debt issues reserved for shareholders, subscribing for the maximum quantity he is entitled to.
1) The net earnings figure used in EPS calculations is susceptible to various adjustments. In this report, the figure employed is always the BPI Group's net accounting profit without any adjustments. 2) A share-capital increase by way of the incorporation of reserves involves the mere book-entry transfer of amounts from one accounting component of shareholders' equity (net assets) to another, and does not entail any payment on the part of shareholders. 3) A different scenario is where the number of shares to be used is required for calculating the "book value per share" indicator as at 31 December of a financial year which precedes that in which the share-capital increase is realised. In this case, the two aggregates are static, with the result that the number to be used is the final number of shares in existence on that date, adjusted only by subsequent events.
Annexes | Appendices 231 INDEX OF FIGURES, TABLES, CHARTS AND "BOXES"
No. FIGURES Page No. Page 01 Growth, profitability, strength and value 5 49 Pension obligations cover 104 02 Governing Bodies 11 50 Internal rating for companies – breakdown of 03 The BPI Group financial structure and business (main units); exposure by classes of risk 111 effective direct / indirect participations 20 51 Bond and fixed-interest securities’ investment portfolio 112 04 Distribution channels 21 52 Current credit risk – substitution value of derivatives 05 Opportunities Server 27 by type of counterparty 112 06 Loans process management 29 53 Loans to Customers in arrears and provisions 114 07 Multi-channel platform 31 54 Loans in arrears for more than 30 days by market segments 115 08 Data warehouse 32 55 Age analysis of Customer loans in arrears 115 09 Procedures adopted in relation to non-performing corporate loans 109 56 Country-risk exposure 116 57 Overall market risk 117 No. TABLES 58 Rating classifications 120 01 Leading business indicators 4 59 Principal BPI shares indicators 123 02 BPI Group Employees 22 60 Distribution of Banco BPI share capital 125 03 Banco BPI’s Employees – selected indicators 24 61 Shareholders owning more than 2% of Banco BPI’s 04 Principal indicators of efficiency, availability and performance 25 share capital 125 05 Detailed forecasts for Portugal and the euro zone 42 62 Creation of value for BPI Shareholders 126 06 Equities market indices 47 07 Individuals Banking and Small Businesses principal indicators 48 No. CHARTS 08 Individuals and Small Businesses Banking – loans to Customers 50 01 Growth through asset consolidation 13 09 New mortgage loans contracted by specialised channels 50 02 BPI Group staff complements 22 10 Individuals and Small Businesses Banking – Customer resources 52 03 Banco BPI Staff Complement – distribution by area of activity 23 11 Corporate Banking, Institutional Banking and Project Finance 04 Banco BPI Staff Complement – University degree and loans and guarantees 55 average age 23 12 Principal indicators of the EFTA Fund's global activity 58 05 Real GDP growth 40 13 Banco de Fomento Angola principal indicators 62 06 Banks lending growth 41 14 Banco de Fomento Mozambique principal indicators 63 07 Bank deposits growth 41 15 Banc Post principal indicators 64 08 Euro exchange rates in 2002 43 16 Assets under management 66 09 Six-month interest rates in 2002 44 17 Trend in volume of BPI unit trust funds 67 10 Ten-year interest rates in 2002 45 18 Distribution of BPI unit trust funds 67 11 Credit risk premiums in 2002 46 19 Capitalisation life assurance business written 68 12 Main international stock market indices in 2002 47 20 Principal Private Banking indicators 74 13 Individuals and Small Businesses banking loans and guarantees 50 21 Principal Private Equity holdings 76 14 Individuals and Small Businesses banking mortgage loans 50 22 Consolidated income statement 78 15 Individuals and Small Businesses banking Customer resources 23 ROE by business areas 80 16 BPI Net and BPI Directo – subscribers with altered password 53 24 Net interest income 81 17 BPI Group sites – pages viewed 53 25 Average interest rates on remunerated assets and liabilities 82 18 Corporate Banking, Institutional Banking and 26 Trend in interest income and expense 83 Project Finance loans and guarantees 55 27 Commissions and other income (net) 84 19 Corporate Banking, Institutional Banking and 28 Profits from financial operations 85 Project Finance Customer resources 55 29 Administrative overheads, depreciation and amortisation 86 20 BPI Customer Global Satisfaction Index 65 30 Personnel costs 87 21 Commissions – intermediation of insurance products 65 31 Employees of fully-consolidated Group companies 87 22 Assets under management 66 32 Outside supplies and services 88 23 Unit trust funds under management 67 33 Deferral of advertising campaign costs 89 24 Distribution of BPI unit trust funds 67 34 Additions and transfers, net of disposals and scrappings 90 25 Capitalisation life assurance – new business per year 68 35 Depreciation and amortisation of intangible and 26 Pension funds under management 70 tangible fixed assets 90 27 Open funds under management 70 36 Provisions (profit and loss account) 91 28 Pension funds long-term return 70 37 Net extraordinary items 92 29 Portfolio of Private Equity investments by sector of activity 76 38 Balance sheet 94 30 Net profit 77 39 Customer loan portfolio 96 31 Contributions by business area to 2002 net profit 79 40 Mortgage loans – breakdown by type of rate 96 32 Loans to Customers – year-end balance 81 41 Securities and participating interests portfolio 97 33 Net interest income 81 42 Coverage of unrealised capital losses in participating interests 34 Net interest income generation 81 under Bank of Portugal notice 4 / 2002 98 35 Interest rates for loans and resources 82 43 Total balance sheet resources 99 36 Commissions and other similar income (net) 84 44 Total Customer resources 99 37 Profits from financial operations 85 45 Shareholders’ equity 100 38 Efficiency ratio and cost-to-income 86 46 Own funds 101 39 Personnel costs 86 47 Own funds requirements 102 40 Net total assets and disintermediation 95 48 Own funds requirements ratio 103 41 Loans to Customers and guarantees 95
232 Banco BPI | Annual report 2002 No. CHARTS (cont.) Page 42 Net total assets breakdown 95 43 Liabilities and Shareholders’ equity breakdown 95 44 Total Customer resources 99 45 Shareholders’ equity evolution in 2002 100 46 Own funds and own funds requirements 103 47 Own funds requirements ratio 103 48 Pension funds assets and BPI Group Employees pension liabilities 106 49 Breakdown of Banco BPI Employees pension funds assets 107 50 BPI Group Employees pension funds – return vs. inflation and ACTV salary scale review 107 51 BPI Group Employees pension funds – return vs. market performance 107 52 Ratio of loans to Customers in arrears 113 53 Provisioning cover of loans to Customers in arrears 113 54 Net credit loss 113 55 Banco BPI shares and key indices performance 122
"BOXES" Historical milestones 12 Our identity 14 Social investment 18 Training (of human resources) 24 Opportunities Server 27 Loans process management 29 Multi-channel platform 31 Data warehouse 32 Reorganisation of the procurement areas 36 Highlights of 2002 38 Structural alterations at Individuals Banking 48 BPI Net and BPI Directo Particulares 53 New BPI Branch 54 Corporate Banking, Institutional Banking and Project Finance networks 56 EFTA Fund 58 Projected merger between Banco de Fomento Mozambique and Banco Comercial e de Investimentos 63 Increase in the level of global satisfaction of BPI Customers 65 BPI Vida offer 69 BPI asset management 71 Mergers, acquisitions, restructurings and consultancy 72 Bank of Portugal notice 4 / 2002 (participating interests) 98 Pension obligations – Regulatory framework 105 BPI Group pension funds 106 Credit Risks Division 110 Home loans – credit risk 111 Rating reports 121
Annexes | Appendices 233 GENERAL INDEX
Page Page REPORT Corporate Banking, Institutional Banking and Project Finance 55 Leading business indicators 4 Wholesale Banking, Large and Medium-sized companies 57 Growth, profitability, strength and value 5 Investment support 57 Introduction 6 Protocol within the ambit of the On the right course 6 Programa Operacional da Economia 57 Selective growth 6 Protocol with the Instituto de Financiamento Efficiency and modernisation 8 e Apoio ao Turismo 58 Strength and confidence 10 EIB and KFW credit lines 58 Governing bodies 11 Project Finance 59 Historical milestones 12 Institutional Banking 61 Leadership, innovation and growth 12 International Commercial Banking 62 The identity of BPI 14 Banco de Fomento Angola 62 The BPI brand 15 Banco de Fomento Mozambique 63 Notoriety 15 Banc Post 64 Efficiency 15 Insurance 65 Satisfaction 15 Asset Management 66 Corporate governance at the BPI Group 16 Overview 66 Corporate and management reorganisation 16 Creation of a risk management area 66 Report on the BPI Group’s corporate governance 16 Unit trust funds 67 Public recognition 17 Institutional clients 68 Social investment 18 Capitalisation life assurance 68 Culture, research, education and social solidarity 18 Pension funds 70 Financial structure and business 20 Pension Fund Returns 70 Distribution channels 21 Investment Banking 72 Human resources 22 Corporate Finance 72 Rationalisation, rejuvenation and qualification 22 Equities 73 Banco BPI 23 Primary equities market 73 Technology 25 Secondary equities market 73 Business and sales support 27 Research 73 Opportunities Server 27 Trading 73 Management of business processes 28 Private Banking 74 GPC Home loans 28 BPI (Suisse), S.A. 74 GPC Personal loans 28 Investment centres 74 GPC Motor car finance 28 Private Equity 75 GPC Cards 28 Market 75 Business support solutions for companies 30 Investment strategy 76 Groups of companies 30 Investments 76 Credit limits 30 Financial review 77 Information management 30 Consolidated results 77 BPI Net Empresas 30 Overview 77 Other business support solutions 30 Results by business areas 79 Availability of structural solutions 30 Profitability by business areas 80 Multi-channel platform 30 Net interest income 81 Global model of banking operations and Commissions 84 interface subsystem 33 Profits from financial operations 85 People Information System 33 Administrative overheads, depreciation and amortisation 86 Security 33 Personnel costs 86 Increase in internal efficiency 34 Outside supplies and services 88 The group’s restructuring 34 Depreciation and amortisation 90 Operations 35 Provisions 91 Highlights of 2002 38 Net extraordinary items 92 Background to operations 40 Results of equity-accounted subsidiaries 93 Macroeconomic background 40 Minority shareholders’ interests 93 Currency market 43 Balance sheet 94 Money market 44 Loans to Customers 95 Bond market 45 Portfolio of securities and participating interests 97 Equities market 46 Customer resources 99 Domestic Commercial Banking 48 Shareholders’ equity 100 Individuals and Small Businesses banking 48 Own funds 101 Loans to Customers 50 Own funds requirements 102 Home loans 50 Own funds requirements ratio 103 Motor car finance 51 Pension obligations 104 Cards 51 Risk management 108 Clients resources 52 Credit risk 108
234 Banco BPI | Annual report 2002 Page Page Management process 108 2.6. Foreign currency operations 144 Evaluation of credit risk exposure – companies, i) Foreign exchange position and foreign currency swaps 144 institutions, specialised finance 110 Foreign currency bills and coins 144 Evaluation of credit risk exposure – individuals Spot position 145 and small businesses 111 Forward position 145 Evaluation of credit risk exposure – securities portfolio 112 Foreign currency swaps 145 Evaluation of credit risk exposure – short-term ii) Translation to euro of balances expressed in interbank credit 112 foreign currencies 145 Evaluation of credit risk exposure – derivate operations 112 iii) Translation to euro of income and expenses Default, provisioning and recovery levels 113 expressed in foreign currencies 145 Country risk 116 2.7. Provisions for specific credit risk 145 Market risks 117 2.8. Provisions for unrealised losses on securities Liquidity risk 118 and other assets 145 Operating risks 118 2.9. Provisions for country risk 145 Legal risks 119 2.10. Provisions for sundry risks 145 Rating 120 i) General credit risks 145 BPI shares 122 ii) Other risks 146 Return on investment 122 2.11. Fund for general banking risks 146 Earnings per share 122 2.12. Retirement and survivor pensions 146 Dividends 122 2.13. Income tax 147 Liquidity 122 2.14. Financial Leasing 147 Stock market capitalisation 122 As lessee 147 Market multiples 122 As lessor 147 Share capital 122 2.15. Factoring 147 Treasury stock 124 2.16. Derivatives 147 Shareholders 125 Interest rate swaps 147 Structure and principal shareholders 125 Forward rate agreements 147 Shareholders value creation 126 Futures 148 Return on Investment (ROI) 126 Options 148 Final acknowledgements 127 2.17. Third party securities received for safekeeping 148 Proposed appropriation of net profit 128 3. Breakdown of applications by business sector and portfolio of securities and equity investments 149 CONSOLIDATED FINANCIAL STATEMENTS 3.1. Breakdown of applications by business sector 149 Consolidated balance sheets as of 31 December, 2002 3.2. Securities and equity investments 150 and 2001 130 4. Notes 162 Consolidated statements of income by nature for the years 4.1. Cash and deposits at central banks 162 ended 31 December, 2002 and 2001 132 4.2. Loans and advances to Credit Institutions Consolidated statements of income by functions for the years repayable on demand 162 ended 31 December, 2002 and 2001 134 4.3. Other loans and advances to credit institutions 162 Consolidated statements of cash flows for years ended 4.4. Loans and advances to Customers 163 31 December, 2002 and 2001 135 4.5. Bonds and other fixed income securities 164 4.6. Shares and other variable yield securities 165 Notes to the consolidated financial statements 137 4.7. Investments in associated companies 165 Notes to the consolidated financial statements 4.8. Investments in subsidiary companies excluded as of 31 December, 2002 and 2001 138 from the consolidation 166 1. The financial group 138 4.9. Other investments 166 2. Information comparability, basis of presentation, 4.10. Intangible assets 168 consolidation principles and principal accounting policies 141 4.11. Tangible fixed assets 168 Information comparability 141 4.12. Other assets 170 Basis of presentation 141 4.13. Accruals, deferrals and others (assets) 170 Consolidation principles 141 4.14. Amounts owed to credit institutions 171 Principal accounting policies 142 4.15. Amounts owed to Customers 172 2.1. Accruals basis 142 4.16. Debt securities 172 2.2. Tangible fixed assets 142 4.17. Other liabilities 177 2.3. Intangible assets 142 4.18. Accruals, deferrals and others (liabilities) 177 2.4. Equity investments 142 4.19. Provisions for sundry risks and fund for 2.5. Bonds, shares and other fixed or general banking risks 178 variable-yield securities 143 4.20. Liabilities for retirement and survivor pensions 178 i) Trading securities 143 4.21. Subordinated debt 180 ii) Investment securities 144 4.22. Minority interests 181 iii) Short-selling of securities 144 4.23. Subscribed share capital 182 iv) Treasury Stock relating to the RVA programme 4.24. Share premium account 182 (Variable remuneration in shares) 144 4.25. Reserves 182
Annexes | Appendices 235 Page 4.26. Goodwill 183 4.27. Provisions 184 4.28. Off-balance sheet items 186 4.29. Financial margin 190 4.30. Net commissions 190 4.31. Net profit on financial operations 190 4.32. Personnel costs 190 4.33. Other operating income and other operating expenses 191 4.34. Extraordinary income and expenses 191 4.35. Income tax 191 4.36. Consolidated net profit 192 4.37. Personnel 194 4.38. Loans and advances to the Directors of Banco BPI 194 5. Explanation added for translation 194 Legal certification of accounts and audit report 195 Auditor’s report 197 Report and opinion of the Audit Board 198
ANNEXES The BPI Group’s Corporate Governance Report 201 1. Reorganisation of the BPI Group 202 2. Structure, division of duties and functioning of the BPI Group's principal management and control bodies 204 3. Remuneration 214 4. Shareholder control and transferability of shares 217 5. Exercise of voting rights and shareholder representation 217 6. Institutional investors 218 7. Code of ethics and professional conduct 218 8. Communication with the market 219 9. Banco BPI share performance and dividend policy 221 10. Appendix of the BPI Group’s corporate governance report 222 Trading information 223
Appendices Definitions, acronyms and abbreviations 226 Glossary 228 Formulary 230 Methodological notes 231 Index of figures, tables, charts and "boxes" 232 General index 234 Miscellaneous information 237
236 Banco BPI | Annual report 2002 Miscellaneous information
INVESTOR RELATIONS OFFICE BPI GROUP INSTITUTIONAL WEBSITE – www.bpi.pt Rua Tenente Valadim, 284 Site on the Internet, available in Portuguese and in English, used by BPI to disseminate information of an institutional nature about 4100-476 Porto the Group, such as: preparatory documents for Shareholders’ Telephone: 22 607 33 37 General Meetings, announcements and press releases (including Facsimile: 22 600 47 38 the disclosure of results), presentations, information concerning E-mail: [email protected] dividends and Banco BPI shares, etc.
Shareholder and Investor Services Electronic editions Public information on BPI Group is available upon request at the This report and other BPI Group publications are available at Investor Relations Office cited above or by filling and sending www.bpi.pt for download in the PDF format. They can also be the detachable below. obtained by request at the Investor Relations Office.
Releases Business address of Banco BPI Governing Body Members In addition to its annual report and accounts Banco BPI The business address of each Member of Banco BPI, S.A. publishes a half-year report and accounts and releases its governing bodies for the purpose hereof is: quarterly results. Rua Tenente Valadim, 284 4100-476 Porto
INFORMATION ON BANCO BPI SHARES At 31 December 2002, Banco BPI, S.A. share capital is Codes represented by 760 000 000 ordinary nominative shares with a SIIB: 65096902 CVM: BPI AM nominal value of EUR 1 each. Banco BPI shares are listed in the Euronext Lisbon. Tickers
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E-mail: BANCO BPI, S.A. INVESTOR RELATIONS OFFICE Rua Tenente Valadim, 284 4100-476 Porto PORTUGAL
BANCO BPI, S.A.
Public held company
Tax identification number 501 214 534
Registered in Oporto C.R.C., under the number 35 619
Headquarters: Rua Tenente Valadim, n.º 284, 4100-476 Porto, PORTUGAL
Share capital: EUR 760 000 000