Activities and Financial Statements 2017

Annual Report Activities and Financial Statements 2017

Annual Report

EUROSYSTEM

Lisbon, 2018 • www.bportugal.pt Annual Report | Activities and Financial Statements 2016 • Banco de Portugal Av. Almirante Reis, 71 | 1150-012 Lisboa • www.bportugal.pt • Edition General Secretariat to the Board | Accounting Department • Design Communication and Museum Department | Design Unit • ISBN (online) 978-989-678-583-3 • ISSN (online) 2182-6080 • Legal Deposit no. 342676/12 Índice

Mission and values of Banco de Portugal | 5 Message by the Governor | 6 Management of Banco de Portugal | 8

Independence requiresaclear mandate,the compliance with its mission. for prerequisite personal and financial terms, which is a independent infunctional,institutional, Portugal isIndependence –Bancode as abenchmark. organisation andprocessesusebestpractices business areas. Its governance model, internal de Portugal employs highly qualified staff in its Competence, effectiveness, Banco efficiency – action andupholdhighethicalstandards; society and public interest at the centre of their Integrity Banco dePortugal’svaluesare: Values • • Banco dePortugal’smissionisto: ResolutionMechanism. Single the SingleSupervisoryMechanismand System of Central Banks and the Eurosystem, Portuguese Republic.ItispartoftheEuropean Banco de Portugal is the central bank of the Mission of Banco dePortugal Mission andvalues Promote financialstability. Maintain pricestability;and – Banco de Portugal’s staff place

the EmployeesofBancodePortugal). Committee andtheGeneralDuties ofConduct of do Banco de Portugal dos DeveresGeraisdeCondutaTrabalhadores e enshrined inRegulamentodaComissãodeÉtica in accordance with high ethical standards The conduct of Banco de Portugal's staff is and advocateofcorporateethics. responsible manner, operatingasasocialactor de Portugalactsinasociallyandenvironmentally Social and environmental responsibility – Banco transparency; assistance, knowledgesharing,loyaltyand in accordancewiththeprinciplesofmutual Team spirit–BancodePortugal’sstaffact and whyhowitdoesit; and societyforwhatitdoes, government the accountable to thePortugueseParliament, the Eurosystem,BancodePortugalis compliance withitstasksinthecontextof Transparency and accountability financial independence; of membersdecision-makingbodiesand from thirdparties,theprotectionofstatus impossibility of seeking or taking instructions (Regulation of the Ethics – In In – 5 6 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 strengthened. was preserved and the financialsystem Public confidence in the Portugueseeconomy. sustainable financingof its criticalrole inthe equipped toperform and therefore better today ismore capitalised and thefinancialsystem financing conditions benefit from favourable agents continued to levels. Economic falling topre-crisis unemployment rate employment, withthe and asharpincrease in by investment, exports, accelerated in2017, driven Economic growth is inagrowth phase. crisis, thePortugueseeconomy of theinternationalfinancial Ten years onfrom thestart by theGovernor Message

the SingleSupervisoryMechanism, and,most permanent monitoring bythe supervisor within of theapplicablelegal,judicialand taxframework, Portugal, which is based on the ongoing revision in sector the for defined strategy the continue 2017 – of about €9.3 billion. Forthis, we have to levels, despitethe substantial reduction in reduced fromitscurrenthighleveltosustainable banks' balance sheets must continue to be On onehand,theNPLstockonPortuguese macroeconomic andfinancialcontext. imbalances, taking advantage of thefavourable achievements, we have tocontinue correct the of Portuguese banks, which are notable (NPLs) andimprovingtheexternalperception solvency, reducingnon-performingloans Despite the progress achieved in boosting of thefinancialsystemasawhole. monitor and mitigate the riskstostability instruments thatallowustoanticipate, means that we have to adopt policies and Banco dePortugalispart.And,secondly,it the SingleSupervisoryMechanism,ofwhich and practices, particularly in the context of robust supervisoryregulations,instruments that we have to ensure, firstly, that we have not, norwillbe,immunetorisks.Thismeans not operateinavacuum,andasresultis Like any other sector, the financial sector does led uptoit. all, topreventtheresurgenceoffactorsthat lessons thatwelearnedinthecrisisand,above is importantinthisnewcontextnottoforgetthe propensity to take on risk, and for that reason, it By nature,growthphasesinvolveagreater Monetary Union. of the Banking Union and the Economic and environment, inparticular,withintheframework and strengthenthepost-crisisinstitutional complete to work the to crisis, financial the of from theeffortstorepairdamage and across Europe, 2017 was a year of transition, From theinstitutionalviewpoint,bothdomestically monetary stimuliintheEurosystem. monetary which willinvolve the gradualwithdrawal of expected normalisation of monetary policy, conditions andtheimpactarisingfrom the well asthedevelopmentsinmarketaccess regulatory andsupervisoryrequirements,as monitor theinstitutions'adjustmenttonew international framework.Inparticular,itwill and indefiningtheapplicablenational risks and vulnerabilities system's financial the proactive in the anticipation and mitigation of Banco dePortugalwillremainvigilantand which appearedduringthecrisis. contagion banking sector, reducing the risks of cross the linkbetweensovereignand for resolvingdistressedbankswillhelpbreak to guarantee schemeandarobustmechanism efforts authorities' deposit single A stability. financial national safeguard the to must becompleted,togiveconsistency Finally, at European level, the Banking Union households, companies and the financial sector. market sentiment,withnegativeconsequencesfor to apossibleriseininterestratesoralterations economy morevulnerabletoadverseshocks,namely of low potential growth, leaves the Portuguese most leveragedinEurope.Highleverage,acontext of Portuguesecompanies,whichareamongthe the economicagents'leverage,particularlythat At the same time, it is vital to continue to reduce portfolios. managing theirNPL important of all, the institutions' engagement in Carlos daSilvaCosta 7 Management of Banco de Portugal Board of Directors*

35 1 2 4 6

1 Governor Carlos da Silva Costa 2 Vice-Governor Elisa Maria da Costa Guimarães Ferreira** 3 Vice-Governor Luís Augusto Máximo dos Santos** 4 Director Hélder Manuel Sebastião Rosalino 5 Director Luís Manuel Sanches Laginha de Sousa** 6 Director Ana Paula de Sousa Freitas Madureira Serra**

* As at 31 December 2017. Vice-Governors Pedro Miguel de Seabra Duarte Neves and José Joaquim Berberan e Santos Ramalho ceased functions on 7 September and 28 February 2017 respectively. ** Appointed by Resolution of the Council of Ministers No 123/2017 of 24 August 2017, published in the Official Gazette No 174, Series I, of 8 September 2017. 9 10 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 ceased functionsasmemberon7September2017. * Asat31December2017.AnaPauladeSousaFreitasMadureiraSerra António GonçalvesMonteiro Member João AntónioMoraisdaCostaPinto Chairman Board of Auditors* Cristina MariaNunesdaVeigaCasalinho Fernando FariadeOliveira Luís FilipeNunesCoimbraNazaré** João LuísRamalhodeCarvalhoTalone** Francisco LuísMurteiraNabo** Francisco AnacletoLouçã** João AntónioMoraisdaCostaPinto António JoséFernandesdeSousa José AlbertoVasconcelosTavaresMoreira Vítor ManuelRibeiroConstâncio Luís AugustoMáximodosSantos Elisa MariadaCostaGuimarãesFerreira Carlos daSilvaCosta Advisory Board* Journal No190 2017, publishedintheOfficial of MadeiraNo825/2017 of2November *** AppointedbyResolutionofthePresidencyRegionalGovernment of 17March2017. I, Series of 23February2017,publishedintheOfficial Gazette No 55, ** AppointedbyResolutionoftheCouncilMinistersNo41/2017 Beleza performedfunctionsuntil22June2017. Pizarro Couceiro Miguel Luís respectively. 2017 November 2 and February 28 Ramalho andRuiManuelTeixeiraGonçalvesceasedfunctionson7September, Pedro MigueldeSeabraDuarteNeves,JoséJoaquimBerberan e Santos * Asat31December2017. Calado*** Pedro MiguelAmarodeBettencourt Roberto deSousaRochaAmaral , SeriesI,of3November2017. 11 12 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Viseu GentilPedrinhoAmado Faro MariaTeresaGomesSameiroMacedo Évora CatarinaSofiaAmaralSilvaGuerra Coimbra MariaJoãoBotelhoRaposodeSousa Castelo BrancoJoséAntónioClaroGaudêncio Braga DomingosMarquesdeOliveira District Agencies Regional DelegationofMadeiraRuiAntóniodaSilvaSantaRajado Regional DelegationoftheAzoresPauloRubenAlvernazRodrigues Regional Delegations Ana OlíviadeMoraisPintoPereira Porto Branch Banking PrudentialSupervisionDepartment(DSP)LuísFernandoRosadaCostaFerreira Banking ConductSupervisionDepartment(DSC)MariaLúciaAlbuquerquedeAlmeidaLeitão Information SystemsandTechnologyDepartment(DSI)AntónioJacintoSerôdioNunesMarques Payment SystemsDepartment(DPG)JorgeManuelEgrejasFrancisco Legal ServicesDepartment(DJU)PedroMigueldaSilvaCerqueiraMachado Administration ServicesDepartment(DSA)DiogoAlbertoBravodeMacedo Resolution Department(DRE)JoãoFilipeSoaresdaSilvaFreitas International RelationsDepartment(DRI)SílviaMariaDiasLuz Markets andReserveManagementDepartment(DMR)HelenaMariadeAlmeidaMartinsAdegas Risk ManagementDepartment(DGR)GabrielFilipeMateusAndrade Human ResourcesDepartment(DRH)PedroMigueldeAraújoRaposo Economics andResearchDepartment(DEE)MariaIsabelSanchesHortaCorreiaRiodeCarvalho Statistics Department(DDE)AntónioManuelMarquesGarcia Financial StabilityDepartment(DES)AnaCristinadeSousaLeal Issue andTreasuryDepartment(DET)PedroJorgeOliveiradeSousaMarques Accounting Department(DCC)JoséPedroPinheiroSilvaFerreira Communication andMuseumDepartment(DCM)BrunoRafaelFernandesProença Legal EnforcementDepartment(DAS)JoãoAntónioSeverinoRaposo Audit Department(DAU)JoséAntónioCordeiroGomes Office oftheGovernor(GAB)MartaSofiaFonsecaCarvalhoDavidAbreu General Secretariat(SEC)JoséGabrielCortezRodriguesQueiró and districtagencies* regional Heads ofdepartment, delegations * Asat31December2017.

13 14 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 *** AppointedbydeliberationoftheBoard DirectorsofBancodePortugal7November2017. ** Asat31December2017.OrlandoPinguinha Caliçoceasedfunctionsasmemberon3October2017. * Asat31December2017. responsibility assignedtoVice-GovernorLuísMáximodosSantoson14February2018. functional 2017; 12December on was created (GPD) Office Protection Data the 2017; October 17 on appointed was (DPO) Officer Protection Data The (a) Organisational chartofBancodePortugalasat31December2017 Member VascoManueldaSilvaPereira*** Member JosédaCunhaNunesPereira Chairman VítorManueldaSilvaRodriguesPessoa Ethics Committee** Chairman HélderManuelSebastiãoRosalino Specialised CommitteeforInformationSystemsandTechnologiesManagement(CEGIT) Chairman AnaPauladeSousaFreitasMadureiraSerra Budget MonitoringCommittee(CAO) Chairman CarlosdaSilvaCosta Committee forRiskandInternalControl(CR) Chairman CarlosdaSilvaCosta Specialised CommitteeforFinancialSupervisionandStability(CESEF) Specialised Committees*

I Activities

1 Monetary authority 2 Financial stability 3 Economic advice and openness to society 4 Internal management

Highlights in 2017

In 2017 Banco de Portugal started the implementation of the Strategic Plan establishing the priorities for the four-year period 2017-2020. These priorities derive from Banco de Portugal’s mission to safeguard financial stability and price stability.

Monetary authority

Banco de Portugal:

• participated in the definition and implementation of the Eurosystem’s standard monetary policy and non-standard programmes. The Governing Council of the European Central Bank decided to keep its key interest rates unchanged, to scale back the volume of monthly purchases under the asset purchase programme (APP) and to extend until September 2018 the period for implementation of this programme;

• ensured, on a continuous basis, that liquidity conditions were suitable for the Portuguese financial system and purchased securities, amounting to €15,445 million in net nominal terms, under the APP, increasing the net portfolio of securities held for monetary policy purposes on its balance sheet by 62%, to €40,174 million;

• managed its own investment asset portfolio, amid particularly demanding market conditions, continuing to diversify its sources of income, namely through an investment fund of the Bank for International Settlements and the lending of securities held in its portfolio, against collateral;

• managed, jointly with the central bank of Lithuania, one of the ECB’s portfolios denominated in US dollars;

• issued regulations governing the In-house Credit Assessment System (Portuguese acronym: SIAC), a credit-rating tool to evaluate the credit quality of collateral accepted for Eurosystem operations, made available in 2016;

• prepared the process of transposing the revised Directive on payment services in the internal market (PSD2) into Portuguese law, in close collaboration with the Ministry of Finance;

• monitored the projects envisaging the provision of instant payment solutions to be implemented in 2018, both the national solution within the framework of SICOI (Portuguese Interbank Clearing System), and TARGET Instant Payment Settlement (TIPS), the new pan-European instant payment settlement service of the Eurosystem, as part of Banco de Portugal’s participation in the Eurosystem’s work;

• concluded an agreement with the central banks of Belgium and Austria aimed at merging the production quotas of the three central banks and dividing them between Valora and the Austrian printing works. This initiative will bring the annual production of Valora closer to capacity utilisation running one shift. Banco de Portugal acquired a 0.25% shareholding in the capital of EUROPAFI, a fiduciary paper manufacturer, opening up the possibility of buying at more favourable prices the paper for the manufacture of banknotes;

• put into circulation the €50 banknote of the Europa series, conducting a number of initiatives to raise awareness of its security features; 17 18 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 • • • • • • • • • • • Banco dePortugal: Financial stability • • and liquidityposition; levels of institutions and monitored deleveraging plans, contributing to improve their soundness particularly demandingassessment processes.Also,itissueddeterminationsonthe capital contributed tothestabilisation ofthevariousinstitutions’managementteams,based on to aconsiderabledecreaseintheseassetsonthebanking system’sbalancesheetin2017; and requested these institutions to have strategic plans for saidreduction, which contributed carried out work to define a strategy to reduce non-performing assets on banks' balance sheets internal governance systemsaswelltosignificantlyreinforcetheir capitalandliquiditypositions; and models business their improve to possible it made which institutions), significant important institutions in Portugal (in liaison with the Single Supervisory Mechanism in the case of carried outtheannualSupervisoryReviewandEvaluationProcess (SREP)in2017forallsystemically for thenormalfunctioningofitssubsidiaryinPortugal; participated in Banco Popular Español’s pre-resolution and resolution processes, which allowed conditioning theexternalassessmentofPortuguesebankingsystem; with the sale of 75% of Novo Banco’s capital to Lone Star, thus eliminating the uncertainty concluded the work involved in the resolution measure applied to Banco Espírito Santo, S.A., decided toextendthedeadlineforcompliancefromtwofouryears; maintained the buffer methodology and levels for other systemically important institutions and 2018, asarecommendation; and consumer relating toresidentialimmovablepropertycredit,whichwasannounced in early defined a macroprudential measure to mitigate the risks associated with new credit agreements and terroristfinancingstartedrevisingitsregulatoryinstrumentsinthisfield; participated inthe setting-up of the new regulatory framework governing money laundering International FinancialReportingStandard9(IFRS9); of implementation for prepare to companies financial and institutions credit with work began European depositinsurancescheme; Regulation and inthenegotiation process ofdraftlegislation governing thecreation of a participated in the revision of the Capital Requirements Directive and the Capital Requirements euro areacreditinstitutions,thememberofSupervisoryBoardhavingvotingpower; all of supervision prudential the in participated It stability. financial safeguarding to contribute institutions), whichhelpedreinforcethebankingsystem'sresilienceandconsequently targeting the main Portuguese banking groups (in liaison with the ECB in the case of significant specifically measures of number a including actions, supervisory of set wide a developed the cashchangeover. bank ofIreland,whichhas been thelargest-ever logistical operationofitskindinPortugalsince entered intoanagreement on theswapanddeliveryofeurocirculation coins withthecentral Banco dePortugal; in Portugal, enabling households and businesses to recover part of the amounts delivered to received and checked an exceptional volume of damaged banknotes as a result of the wildfires • • • • • • • • • Banco dePortugal: Economic advice andopennesstosociety • • • • the exerciseofitstasksassoleshareholderN for needed support the provided it Fund, Resolution the of case specific the In depositors. to Agricultural CreditGuarantee Fund, and supported the development of an IT tool for repayments provided services to the Resolution Fund, the Deposit Guarantee Fund and the Mutual of definition resolution practicesandmethodologies; the in and groups banking Portuguese main the for plans resolution of update participated, withintheframework of theSingleResolutionMechanism, in theelaborationor Funchal, S.A.,allowingthejudicialliquidationprocesstostart; pursued theimplementationofresolutionprocessBanif–BancoInternacionaldo TF andillicitfinancialactivityprevention; ML/ of terms in model supervisory Portugal's de Banco of sophistication and effectiveness the recognised which (FATF), Force Task Action Financial the by system (ML/TF) financing terrorist concluded itsparticipationintheassessment of the national anti-money laundering and counter members ofthemanagementandsupervisorybodiessupervisedinstitutions; institutions, and conducted32proceedingsforapossiblereassessment of thesuitability possible withdrawal of the authorisation of credit institutions, financial companies and payment settled 271andinitiated154administrativeproceedings,analysed12proceedingsfora within theframeworkofitsregulatoryandsupervisoryresponsibilities; and fintech and foreseeing by 2020 the challenges posed in the wider context of its mission and set upapermanent multidisciplinary team tasked with studyingtheevolutionofDigitalBanking Bank Cust software. It diversified its communication channels, formats and contents, and launched a new adopted a stakeholder management model, supported bya client relationship management Granular Data (INEXDA), together with central banks from EU countries that are part of the G20; and launched the International Network forExchanging Experience on Statistical Handling of started to providegranular information to researchers, via its Microdata Research Laboratory, and seminars; analysis and research over the four-year period – and organised several specialised conferences for fields priority the out sets which – 2017-20 period the for agenda approved theresearch participated asanon-G20membercountryinG20's and network regional its through country, the across courses training financial increased Also, itenabledtheopeningofbankaccountsexclusivelyatadistance,throughvideoconference; channels in Portugal, identifying the main obstacles to take-up and market development. digital published areportonavailability,contractinganduseofbankingproductsservicesvia scope ofbankingconductsupervision; minimum banking services, to increase and reinforce bank customer rights andtowidenthe developed aseriesofregulatory initiatives onmortgagecredit, credit intermediaries and importantforthesystem; and of qualifyingholdingsandstatutorychanges,somewhichwereparticularlycomplex completed theanalysis of over115 processes relating to authorisation procedures, acquisition omer Website; ovo Banco,S.A.andOitante, Global PartnershipforFinancialInclusion; 19 20 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 • • • • • • • • • • • • Banco dePortugal: Internal management launched a new regular publication: the the wildfiresthathitcountry,anddonatedproceedstoREVITAFund. children and teenagers. It ran an in-house campaign to raise funds to support those affected by continued to run several social responsibility projects, which chiefly promote social inclusion of Award; Year the of Museum Best the noticeably most awards, national several received and Award, Year the of Museum European the in finalist a was Museum Money The Julião. São of Church won theValmorandMunicipalArchitectureAwardfor renovation project ofthe former inPortuguese- education speaking countries; and inclusion financial advance to Inclusion Financial for Alliance speaking countries, under which a protocol for technical cooperation was signed with the hosted the 3rd WorkshoponFinancial Inclusion and Education for Central Banks of Portuguese- activities developedinconjunctionwithcounterpartiesfromemerginganddevelopingcountries; international organisationson cybersecurity. created theSecurityOperationCentretorespondand cooperatewithPortuguese and application fortheanalysisofcollateraleligibility. Microdata ResearchLaboratory(LaboratóriodeInvestigaçãoMicrodados–BPLim ) andan new statistical website, a new Central Credit Register, a technological platform to support the the technological infrastructure to implement a corporatedatabase, continued to workonthe invested in technological renewal and redesigned several sites under its management. Changed and modernisedhumancapitalmanagementplatforms; de Liderança Avançado Advanced LeadershipProgramme(Programa EstratégicaeMudançaparaaExcelência de Liderança launched the Programme for Strategic Leadership and Change towards Excellence (Programa systems supportingtheBank’soperation. to related effectiveness of the governance, risk five management and internal control processes, and as well as the domestic exclusively were which systems and processes that are common or shared with the Eurosystem, in ordertoassess the of 28 audits, internal 33 out carried pursued apolicyofintegratedmanagementfinancialandoperationalrisks; 17 October2017; created the Data Protection Office, headed by the Data Protection Officer, appointed on communication policy; created the Communication and Museum Department to developan integrated and coherent central bankstandardsintermsofmanagementandcontrol; the tasks involved initsparticipationthe Banking Union andtoimprovethealignment with enhanced the organisational and internalgovernance model tomeet the needtoseparate , which focuses on the Annual Report on Cooperation, which focuses on the ) fortopmanagement, continued the ) formiddlemanagement

On average Annual total(volume) (a) Excluding staff on secondment or on unpaid leave. (b) Credit institutions, financial companies and payment institutions. (c) In cooperation with the the with cooperation In (c) criminal police.(d)Availablesince19November2017. institutions. payment and companies financial institutions, Credit (b) leave. unpaid on or secondment on staff Excluding (a) As at31December Table I.1• Internal auditscarriedout Visits totheBankCustomerWebsite(dailyaverage)(d) Visits toBancodePortugal’snewinstitutionalwebsite(dailyaverage) sheet (EURmillions) Average balanceofmonetarypolicyportfoliosinBancodePortugal’s – Residentcounterparties(EURmillions)" "Average balanceofopenmarketoperationsandstandingfacilities Donated meals Visitors totheMoneyMuseum Statistical seriesreportedtointernationalorganisations Cooperation initiativescarriedout Counterfeit euro banknotes seized (c) Counterfeit eurobanknotesseized(c) Processed eurobanknotes(millions) Transactions settledthroughSICOI(millions) Transactions settledthroughTARGET2-PT(thousands) Recommendations andspecificorders–retailbankingmarkets Administrative proceedingsinitiated participates) International institutionalrepresentation(groupsinwhichBancodePortugal Gold portfolio Number ofinstitutionsregisteredinPortugal ECB foreignreservesmanagedbyBancodePortugal(EURmillions) Average ageofstaff Number ofemployees (EUR millions) (tonnes) Number ofactiveemployees Banco dePortugal’sactivityinnumbers (a) (b)

628,371 10,250 26,972 11,213 29,142 11,968 382.5 8,587 2,205 1,754 1,034 1,559 1,777 1,696 2015 44.1 106 641 283 391 377 43 − − 690,541 41,210 24,729 24,024 10,529 58,467 13,503 382.5 7,757 2,354 1,783 1,020 1,619 1,797 1,718 2016 43.8 129 628 276 462 370 36 − 716,000 41,416 40,174 22,862 10,637 62,859 16,908 13,300 382.5 3,342 2,541 1,928 1,438 1,761 1,701 2017 43.5 126 647 753 154 480 369 33 21 22 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Governor Figure I.1• 2017, theBanktookpartin480groupsofinternationalorganisations(ChartsI.1andI.2). addition, Banco de Portugal also participates in other organisations at global level (Figure I.1). In Board andintheEuropeanBankingAuthority–otherUnion(EU)institutions.In Risk Systemic European the in specifically – Supervision Financial of System European the in actively Banking UnionMechanisms,participatingintheirgovernanceat the highest level.Italsoparticipates Banco de Portugal is part of the Eurosystem/European System of Central Banks (ESCB) and the international contexts Banco dePortugal intheEuropean Unionand Source: BancodePortugal.|*Participationof theGovernor.**BancodePortugalisnotrepresented. Internationa Wo Committees, Go S of Council* Committees, M ingle G S Boar rking verning European upervisory Systemi onetary Boa o General Committees, Fund Board* Boar vernors ECB Risk dJoint Eurosystem S rd Gr upervisory Main internationalbodies–RepresentationofBancodePortugalandthe ñ

o /ESC B ups c

a * W

nking l orking B W Council* Gener Supervision orking M G echanism ro Te S al upervisory European ups Authority amsSingl G

Banking All European ro M Go Committees, ups eeting* International vernors' of e Banking B International a Settlement nking Bank Committees, EC System Informal OFIN* W Union Supervisor Other C f orking o or and Annual nfe Eu S Authority

o S ecurities ingle Boar M s f S ro re Committees, Ma upervisory Financial G eeting* Committees, nce W pean d/Singl ro s rk Ge orking EU Resolution e ets ups E ne

con Fi ComitÈ

nanceir Council e ra Ûm G l Supervision ro W ico W ups orking o orking M Insur Re O Authority Re echanism Eu ccupational solu Pensions solu G ro Consultative ance and for Europe* Financial Committee G Stability ro pean Regional E on Board Group conomic ro on ups a F Fi * ups undJoint T nancial nd *

eams

S of Committee Authorities upervisory Commission E Committees, Committees, European ur I J Eu d oint nsur Scheme Deposit iscussion Wo Wo opea Gr Gr OECD (under ro o o rking rking pean ance ups ups n

)

Chart I.3• were alsousedasabenchmarkforthebestpracticeadoptedbyESCBinthisdomain. 1. Source: BancodePortugal. explicit andsystematicassessmentofcooperationquality. this activity, which included the carrying out of remote initiatives and the commitment to making an Cooperation betweenCentralBanksofPortuguese-speakingCountriespromoteddevelopmentsin counterparts inPortuguese-speakingcountries.ThePrinciplesandRecommendationsof In 2017,BancodePortugalcarriedout126cooperationinitiatives(ChartI.3),80%ofwhichwithits countries, notablyPortuguese-speakingcountries. Banco dePortugalalsohascooperationrelationswithitscounterpartsinemerginganddeveloping of payment and market infrastructures, and the impact of the United Kingdom’s exit from the EU. with thenewregulatoryrequirementsandtechnologicalevolution,innovationintegration namely in response to the need to reduce the weight of non-performing assets and to comply and MonetaryUnion(inparticulartheBankingUnion),adjustmentofbanks’balancesheets, Economic to related topics on focused chiefly agenda international Portugal’s de Banco 2017, In activity Chart I.1• 400 500 100 200 300 0 For furtherdetails,seetheAnnualReportonCooperation 2017 120 150 90 30 60 0 2013 Groups Cooperation activity Evolution ofinternational 2014 2013 2015 Number of initiatives with Portuguese-speaking Countries Portuguese-speaking with initiatives of Number Countries Developing and Emerging Other with initiatives of Number Representatives 2016 2014 2017 organisation Chart I.2• Bankfor International International MonetaryFund European Systemic Risk Board Risk Systemic European Single Resolution Mechanism Resolution Single Settlements European Banking Authority European Banking 2015 1% 1% 5% 3% 15% International representationper 1 These principles and recommendations Theseprinciplesandrecommendations Single Supervisory Mechanism Single 2016 OCDE 4% 10% Other 13% 2017 Eurosystem/ESCB 42% Economic and Commission Committee, EU Council, European European Financial Financial 6% 23 24 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 organisation ofthe3 high-profile eventsinthecooperationfield2017.AlsonoteworthywasBancodePortugal’s decolonisation inAfricathe20thCentury,latterco-organisedbyBancodePortugal,were The and Timor-Leste. Support Project for the Consolidation of the Rule of Law in Portuguese-speaking African countries Banco dePortugalparticipatedasfacilitatorintheFinancialIntelligenceUnitssessionof promoting financialinclusionandeducationinPortuguese-speakingcountries. and the Alliance for Financial Inclusion, a G20-partner non-governmental organisation aimed at Education, under which a cooperation protocol was signed between the said central banks and 27 th LisbonMeetingandtheConferenceentitledMoneyinAfrica–Monetaryfinancial rd MeetingofPortuguese-speakingCentralBanksonFinancialInclusion of SIACtonon-financialrep made available in 2016. In December, the Governing Council of the ECB approved the expansion tool toevaluate the credit quality of collateral acceptedfor Eurosystem operations, which was Assessment System (Portuguese acronym: SIAC) securities eligible inthe Eurosystem. The regulations governing Banco dePortugal’s In-house Credit contained 135 securities reported byBanco de Portugalaseligible,from auniverse of 34,610 48 new securities eligible and introducing 1,782 updates in the list. At the end of 2017, the list securities traded in Portuguese markets accepted for the purpose, having identified and reported As regardsthelistofeligibleassets of theEurosystem, Banco dePortugalanalysed the eligibilityof balance sheetrecordedafurthersignificantincreasein2017,reaching€40,174million. Turning to the APP, the average balance of monetary policyportfolioson Banco de Portugal’s market operationsandstandingfacilitiesdecreasedby5%totheamountof€22,862million. given thatexcessreserves are remunerated at therateof-0.40%. Theaverage balance ofopen facility, deposit the use to disincentive a and institutions the in liquidity excess higher reflecting to the deposit facility and marginal lending facility decreased by 13% compared with 2016, providing operations and the resident institutions participated in71 of those operations. Recourse Eurosystem conducted126openmarketoperations,includingUSdollar-denominatedliquidity open marketoperationsandstandingfacilities,14participatedinatleastoneoperation.The Of the 37 institutions established in Portugal that were eligible to participate in the Eurosystem’s banking systemandmonitoredcompliancewiththeminimumreserverequirements. country, managedtheircollateral,producedthedailyforecastofliquidity needsofthe the de Portugalconductedthemonetarypolicyoperationswithcreditinstitutionsestablishedin As partofthedecentralisedimplementationmonetarypolicyinEurosystem,Banco Full Allotment(FRFA)tenderproceduresuntiltheendoflastreservemaintenanceperiod2019. €30 billionduringthisadditionalperiod.AlsoinOctober,theECBdecidedtoextendFixedRate APP byninemonths, until September2018, reducing theamount of monthlyasset purchases to €60 billion, as of April 2017 to the end of the year. In October, the ECB decided to extend the of monthly purchases under the asset purchase programme (APP) was scaled back from €80 to deposit facility at -0.40%. As regards the non-standard monetary policy measures, the volume the on and 0.25% at facility lending marginal the on 0%, at operations refinancing main the on In 2017 the Governing Council kept the key ECB interest rates unchanged, maintaining the rates members. Inthecourseof2017eightmeetingswereheldtodiscussEurosystem’smonetarypolicy. Eurosystem nationalcentralbanksplusthemembersofExecutiveBoardECB,totalling25 decisions aretaken by theGoverningCouncilofECB,whichconsistsgovernors with the main objective of the Eurosystem which is the maintenance of price stability. Monetary policy Banco dePortugalsharesresponsibilities over the definition of euro area monetary policy, in accordance 1.1 1 Monetaryauthority 2. Instruction ofBancodePortugalNo2/2017,available athttps://www.bportugal.pt/instrucao/22017. Monetary policy orting entities,inlinewiththeStandardAccountingSystem. 2 were published in March. SIAC is a credit-rating

25 Monetary authority 26 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 large shareofeuro-denominatedassetsareactivelymanaged andvaluedatmarketprices. foreign currency and gold. Assets in the trading portfolio denominated in foreign currency and a Banco dePortugal’sowninvestmentassetportfolioiscomposed ofassetsdenominatedineuro, December 2017,theportfolioamountedtoUSD1,725million (€1,438million). of Lithuania,comprising the amount ofthe ECB reservesallocated to thetwocountries. As at 31 early 2012. Since January 2015, this management has been jointly made with the central bank specialisation model,BancodePortugalhasmanageda US dollar-denominatedportfolioasof agreement concluded with the Eurosystem nationalcentralbanks.Onthebasis of thecurrency The management of the ECB foreign reserves is decentralised, in accordance with an agency In 2017, the average balance of net financial assets held by Banco de Portugal was €8,060 million. Table I.1.1• 3. Agreement onNetFinancialAssetsbetweentheeuroareanationalcentralbanksandECB. Banco dePortugal’snon-monetarypolicyholdingsareconstrainedbythelimitestablishedin according to the ECB’s capital key; and (ii) Banco de Portugal’s own investment asset portfolio. corresponding totheinitialtransferofforeignreserveassetsfromBancodePortugalECB, Banco de Portugal manages two types of portfolios: (i) the ECB’s foreign reserve portfolio, 1.2 institutions toevaluatetheriskofcollateralacceptedforEurosystemcreditoperations. the performanceofapprovedinternalratings-based(IRB)systemstobeusedbynationalcredit envisaged withintheframeworkofEurosystem.BancodePortugalalsomonitoredandanalysed to collateralandvariationmarginsontherespectivevaluationimposinglimitstheiruse,as Banco dePortugalcontrolledtherisksofmonetarypolicyoperationsbyapplyingeligibilitycriteria providing operationsnetoftheaveragebalanceliquidity-absorbingoperations. Source: BancodePortugal.|Note:Theaveragebalanceofopenmarketoperationsandstandingfacilitiescorrespondstothebalanceliquidity- Management ofBancodePortugal’sowninvestmentassets ECB foreignreservemanagement Average balanceofmonetarypolicyportfolios (EUR millions) (resident counterparties,EURmillions) Average balanceofcollateralpools facilities (EURmillions) Average balanceofopenmarketoperationsandstanding market operationsandstandingfacilities Number of(resident)counterpartiesparticipatinginopen Number ofeligible(resident)counterparties counterparties Number ofusesstandingfacilitiesbyresident counterparties participated Number ofopenmarketoperationsinwhichresident Number ofEurosystemopenmarketoperations For furtherdetails,seetheECB’swebsite Asset management Monetary policyimplementation–mainindicators

68,596 39,455 5506 2014 185 120 249 28 38 10,250 54,913 26,972 2015 128 23 39 88 74 24,729 52,938 24,023 2016 136 25 37 60 83 40,174 50,772 22,862 2017 126 14 37 52 71 Δ 2017/2016 -44% -13% -14% 62% -4% -5% -7% 0% 3

operational riskspursuedbyBancodePortugal(Chapter 4). were monitored within the framework of the integrated management policy of financial risks and Overall risk developments associated with asset management and monetary policy operations assets andoperations. and were established taking into account the credit, exchange rate and interest rate risks of These criteriaandlimitsaresetoutintheinternalguidelines approvedbytheBoardofDirectors criteria on the operations, instruments and institutions and setting maximumexposure limits. Banco dePortugalcontrolledtheriskofassetmanagement operationsbyimposingeligibility by 1.5%duetothedepreciationofUSdollar. remained unchanged(382.5tonnes),thevalueofgoldreserveexpressedineurosdeclined securities. Although,similarlytopreviousyears,thequantityofgoldheldbyBancodePortugal prices and atyear-end portfolio, exchange rates, decreased by 20.5%, with 77.1% of its funds invested in euro-denominated trading the reflection, a As rates. positive at investment 5.5% in2017,duetothetransferoffundsfromtradingportfolio,asyieldsincreased,enabling Reversing developmentsrecordedin2016,themedium-terminvestmentportfolioincreased Source: BancodePortugal. Chart I.1.1• in thetradingportfolio,amidveryloworevennegativeinterestrateseuroarea(ChartI.1.1). million, i.e. 10.2% less than in the previous year, largely due to the decision to reduce the assets held As at 31 December 2017, Banco de Portugal’s own investment asset portfolio amounted to €34,596 cost. Assetsingoldarevaluedatmarketprices. Assets in the medium-term investment portfolio are held to maturity and valued atamortised the lendingofsecuritiesheldinitsportfolio,againstcollateral. income, namelythroughaninvestmentfundoftheBankforInternationalSettlements(BIS)and of foreign currencies against the euro, Banco de Portugal continued todiversifyits sources of number ofmaturitiesasregardsinvestmentineurosandwiththebroad-baseddepreciation a in rates interest negative with management, for conditions market difficult particularly Amid 10�000 15�000 20�000 5�000 0 Own investmentassetportfolio Trading portfolio 2014 2015 Medium-term investment portfolio investment Medium-term 2016 Gold portfolio Gold 2017 27 Monetary authority 28 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 on paymentservicesintheinternalmarket(PSD2). 2017 was marked by the work preparing the implementation in Portugal of the revised Directive 1.3 4. Chart I.1.2•OveralltransactionsthroughTARGET2-PT|Volumeinthousandsandvalue€billion dropping by11%(ChartI.1.3). transactions settled in TARGET2-Securities by the national community (€214 billion) also declined, of transactions,therewasa7.7%reductioninvalue(ChartI.1.2).Thetotalsecurities million transactions,totheamountof€1,942billion.Despiteanincrease8.2%involume for europayments)maintainedoperationalavailabilityat100%andprocessedmorethan1.9 In 2017,TARGET2-PT(thePortuguesecomponentofthereal-timegrosssettlementsystem reliability andefficiency. their ensure to infrastructures market financial other the as well as TARGET2-Securities), and basis theretailpaymentsystem(SICOI)andlarge-valuesystems(TARGET2-PT As part of the payment systems oversight, Banco de Portugal monitored and assessed on a regular European instantpaymentsettlementservice. instant transfersandtheTARGETInstantPaymentSettlement(TIPS),newEurosystem’span- of SICOI(thePortugueseInterbankClearingSystem)isduetobelaunchedfortheprocessing the shortrun,ofinstantpayment solutions forPortugal.Asaresult,in2018,newsub-system payments marketwithinthescopeofPSD2.2017alsosawpreparatorywork for theprovision,in Fintech, an eventintendedto promote thecreationofinnovativetechnologicalsolutionsin payments market and co-organised with CIONETthe Banco de Portugal fostered the dialogue and interaction with the relevant stakeholders in the Gross paymentandsecuritiessettlementsystems

Directive (EU)2015/2366 of25November2015. Volume 1,500 1,550 1,600 1,650 1,700 1,750 1,800 1,850 1,900 1,950 Payment systems 2013 2014 Volume 2015 4 In the digital innovation and fintech field,fintech and innovation digital the In PayChallenge/The Future of Payments and 2016 Value 2017 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Value growth rates Chart I.1.5• in value(ChartsI.1.4andI.1.5). continued togrow,converselytheuseofcheques,whichdecreasedby12%involumeand6% for anincreaseof8%,bothinvolumeandvalue.Theuseelectronicpaymentinstruments bank cards. In 2017, SICOI processed €2.5 billion transactions, totalling €417 billion, accounting processes andclearspaymentsbycheque,billsofexchange,directdebits,credittransfers Banco dePortugalensuresthesmoothrunningofretailpaymentsystem,SICOI,which Retail paymentsystem (a) Figuresfortheperiodbetween2013andMarch2016refertoInterbolsaoperationssettledinTARGET2. value in€billions Chart I.1.3• growth rates Chart I.1.4• Multibanco

86% Volume Multibanco 100 150 200 250 300 350 400 450 Transfers 50,000 28% 53% ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 0 | involume | involume Relative weightofpaymentinstrumentsinSICOI2017 andyear-on-year Settlement ofsecuritiesthenationalcommunity|Volumeinthousandsand Relative weightofpaymentinstrumentsinSICOI2017andyear-on-year 2013 Direct debits 2014 Volume 6% Cheques 13% Direct debits Transfers Cheques 7% 5% 1% 2015 -10% -10% -20% 10% 20% 20% 10% 0% 0% Cheques Cheques 2014 - 2014 12% 2016 - 6% Value Direct debits Direct debits 2015 2015 12% 16% 2017 Multibanco Multibanco 2016 2016 8% 9% 0 50,000 100 150 200 250 300 2017 2017 ,000 ,000 ,000 ,000 ,000 Transfers Transfers 8% 11% Value 29 Monetary authority 30 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 3.6, onascaleof1to4. transit companiesonitscash-related services.Resultsshowadegreeofoverallsatisfaction of In 2017,BancodePortugal carried outasatisfactionsurveyofcreditinstitutionsand cash-in- million coins,thelargest-everlogisticaloperationofitskind inPortugalsincethecashchangeover. a resultofthe adoption of voluntaryroundinginpayments.Thisoperationinvolvedmoving274 country andtheirlessfrequentuseinpayments,for1 2centcoins,inexcessIrelandas the into coins these of migration significant the to due Portugal in excess in coins, €2 value face circulation coinswiththecentralbankofIreland,under whichBancodePortugalswappedat Turning tocoins,BancodePortugalenteredintoanagreement ontheswapanddeliveryofeuro total numberofcounterfeitsseizedintheeuroarea),mostly €20and€50banknotes. 16,908 counterfeitbanknoteswerewithdrawnfromcirculation (correspondingto2.4%ofthe banknotes and2,005escudobanknotes). increase ofapproximately64%from2016,when23,150banknoteswereevaluated(21,145euro and 2,433escudobanknotes(legacycurrency)wereevaluatedin2017,correspondingtoan recover partoftheamountstheyhaddeliveredtoBancodePortugal.35,600eurobanknotes to able were they as fires, the by hit businesses and households on impact positive a had work, damaged banknotes.Theanalysisofbanknotes,requiringpainstakinganddemanding As a result of the wildfires in Portugal in 2017, Banco de Portugal received a far higher volume of fragmented aresubjecttoacomplexmanualanalysisandevaluationprocess. speed machines, the banknotes received by Banco de Portugal that are extremely damaged and high- through processed are banknotes most Although unfit. considered were million 141 which circulation of647millionbanknotesreceivedfromthegeneralpublicandcreditinstitutions, As part of its cash handling functions, Banco de Portugal checked the authenticity and fitness for conducted anumberofinitiativestoraiseawarenessthesecurityfeaturesthisbanknote. In 2017,the50eurobanknoteofEuropaserieswasputintocirculation.BancodePortugal capacity installedinCarregadoprintingworks. Valora will beabletoproducebanknotesforthiscentral bank, takingadvantageoftheproduction orders, its meet to sufficient not is capacity France’s de Banque which in periods the during and the possibilityofbuyingatmorefavourablepricespaperformanufacturebanknotes, fiduciary paper manufacturer(inwhichthecentralbankofFrancehasamajorityshareholding),openingup a EUROPAFI, of capital the in shareholding 0.25% a acquired also Portugal de Banco bring theannualproductionofValoraclosertocapacityutilisationrunningoneshift. dividing themequallybetweenValoraandtheAustrianbanknoteprintingworks.Thisinitiativewill Belgium andAustriaaimedatmergingtheproductionquotasofthreecentralbanks printing works, BancodePortugalconcluded,in2017,anagreementwiththecentralbanks of Pursuing theinteractionstrategywithothernationalcentralbanks,ECBandprivate fully ownedbyBancodePortugal. Since theintroductionofeuro,banknoteprintinghasbeenawardedtoValoraS.A.,acompany Banco de Portugal is the institution entrusted with the production of banknotes at national level. legal period.On31December2017,thelistincluded17,263entities. 12,671 wereremoved,followingadecisionofBancodePortugaloruponexpirytheapplicable of Cheque Defaulters across the banking system. In 2017, 10,003 entities were added to the list; In ordertopreventtheunlawfuluseofcheques,BancodePortugalmanagesanddisclosesaList Banknotes andmetalcoins Recommendation Banco de Portugal participated in the implementation in Portugal of the ECB’s Guideline and Framework ofCreditInstitutionsandFinancialCompanies. position. Atdomesticlevel,workwasundertaken(andisstillunderway)torevisetheLegal Permanent Representation to the European Union, so as to contribute to establish a national draft legislation,whereapplicable,inliaisonwiththeMinistryofFinanceandPortuguese subsequently put forward (Box 1). Banco de Portugal monitored the negotiation process of said Financial SupervisionandthemonitoringoflegislativeinitiativesthatCommission of (EDIS); (iii)theCommission'spublicconsultationonrevisionofEuropeanSystem Commission draftlegislationgoverningthecreationofaEuropeandepositinsurancescheme (CRD IV),andtheCapitalRequirementsRegulation(CRR); 8. 7. 6. 5. (BRRD), Commission draft legislation for the revision of the Bank Recovery and Resolution Directive In 2017BancodePortugalparticipatedinthefollowing:(i)negotiationprocessofEuropean 2.1 2 Financialstability 9. See publication of Notice of Banco de Portugal No 10/2017, the in culminated which institutions, credit significant less to relation in authorities competent report bytheWorkingGroupforFinancialSupervisionSystemReform. Banco dePortugalalsoparticipatedinthepublicconsultationthatfollowedpublicationof revising itsregulatoryinstrumentsinthisfield. the revisionofDirective(EU)2015/849(FourthAnti-MoneyLaunderingDirective)–andstarted monitoring closely – (ML/TF) financing terrorist and laundering money governing framework In 2017 Banco de Portugal concluded its participation in the setting-up of the new regulatory standard andpromotingcloseinteractionbetweeninstitutions,auditorsadvisers. instruments, conducting horizontal evaluations of the institutions’ readiness toimplement this financial on 9) (IFRS 9 Standard Reporting Financial International of implementation for prepare to companies financial and institutions credit with work began also Portugal de Banco addition, Guideline (EU)2017/697(ECB/2017/9) treatment ofcertainpublicsectorexposures(Regulation (EU)2017/2395). exposures large the for and funds own on 2018 January 1 of as adopted were 9 IFRS of introduction the of impact the mitigating for arrangements Directive 2013/36/EUand the resolutionofcreditinstitutionsandcertaininvestmentfirmsinframeworkaSingle ResolutionMechanismandaSingleFund. Regulation (EU)No806/2014 of theEuropean Parliament andoftheCouncil of 15July 2014 establishing uniform rulesand a uniformprocedurefor credit institutionsandinvestmentfirms. of resolution and recovery the for framework a establishing 2014 May 15 of Council the of and Parliament European the of 2014/59/EU Directive Notice ofBancodePortugal10/2017 5 Regulatory framework theSingleResolutionMechanismRegulation(SRMR), 8 ontheexerciseofoptionsanddiscretionsavailableinUnionlawbynational Regulation (EU) No 575/2013 and Recommendation(ECB/2017/10) (inPortugueseonly). respectively.Underthescopeofrevision of Regulation (EU) No 575/2013, transitional . 9 preceded by a public consultation. In 7 (ii)thenegotiationofEuropean 6 theCapitalRequirementsDirective 31 Financial stability 32 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Work began to define a strategy to reduce the NPL stock on the banking sector's balance sheet for buildingscenariosandanalysingthesensitivityofPortuguesebankingsector. namely solvency,profitabilityandassetquality(TableI.2.1). fields, important various in progress show to continued system banking Portuguese the 2017 In constraints ontherecoveryofsystem'sprofitability. given the excessive share of NPLs on Portuguese banks' balance sheets and the resulting current stageofthePortugueseeconomy'sbusinessandfinancialcycle: which focused on the issues that are most important from the viewpoint of financial stability atthe In 2017BancodePortugalreinforcedtheanalyticalcomponentofFinancialStabilityReport, 2.3 same countriesidentifiedinthepreviousexercise. to identifythethirdcountriesthatarerelevantforPortuguesebankingsystem,keeping countercyclical capital buffer, which remained at 0%. In addition, it carried out the annual exercise On a quarterly basis, Banco de Portugal reassessed and introduced no changes to the institutions (O-SIIs),butdecidedtoextendthedeadlineforcompliancefromtwofouryears. Banco de Portugal maintained the buffer methodology and levels for other systemically important value (LTV)anddebt-service-to-income(DSTI)ratios. a recommendation,consistedoftheintroductionlimitstomaturityloansandloan-to- residential immovablepropertyandconsumercredit.Thismeasure,announcedinearly2018as to relating agreements credit new with associated risks the mitigate to measure a defining on In theexerciseofitspowersasnationalmacroprudentialauthority,BancodePortugalworked 2.2 14. 13. 12. 11. 10. leverage inthefinancialsystem. excessive alleviate to sufficient deemed being time the for is requirement microprudential a as of macroprudentialinstrumentsin Portugal. It ledto the conclusion that introducing this ratio December Within the scope of macroprudential policy, a special issue was published in the and fundingplansthetop-downmodel In the assessment of risks and vulnerabilities, Banco de Portugal took into consideration capital level. the vulnerabilityofresidenteconomicagentstointerestraterises,giventheirhighindebtedness (NPLs), theassessmentofa possible overvaluation of residentialproperty market prices,and to thePortuguesebankingsystem,strategyaddressstockofnon-performingloans For moreinformationseeBox3intheFinancial StabilityReport tial ratios(capitalandliquidity),givenaspecific macroeconomicandfinancialscenario. The top-down model is a model used for projecting the banking sector's balance sheet and income account and their impact on the relevant pruden- For furtherdetails,seetheboxesandspecial issuepublishedinthe andMacaoSpecialAdministrativeRegionofthePeople's RepublicofChina. Republic ofAngola, of Mozambique, For furtherdetails,seeBancodePortugal'swebsite. Stability oftheportuguesefinancialsystem Macroprudential policy Financial StabilityReportassessingtheneedtoincludeleverageratioinset of June2017 13 forthebankingsector,whicharekeyinstruments Financial StabilityReport and Specialissuein the FinancialStabilityReport 11

10 ofJune2017 andDecember2017. 12 thechallengesposed of December2017. 14 , €7 billionbetweenSeptember 2016andDecember2017. possible tostrengthenthecapital levelsoftheinstitutionsundersupervision,totalling more than As regardsthecapitalposition, thedeterminationsissuedinsupervisoryprocess madeit based onparticularlydemandingassessmentprocesses. institutions’ managementteams(with479personsauthorised and84recommendationsissued), various the of stabilisation the ensure helped Portugal de Banco field, this In ofinstitutions, mechanisms. stability the for field critical a is supervisory actions were carriedout with aviewtoreinforcingtheinternal control andgovernance it that given governance, internal of terms In balance sheetin2017. considerable decreaseofapproximately€9,300millionin theseassetsonthebankingsystem's imposing, challenging andmonitoringstrategicplanstoreduceNPLs,whichcontributeda As regardsthebusinessmodel,workwascarriedoutat the levelofnon-performingassets,by and liquiditypositions. business models and internal governance systems as well as to their significantly reinforce improve their capital to possible it made institutions) significant of case the in SSM the with liaison (in The annualsupervisoryprocessin2017forallsystemicallyimportantinstitutionsPortugal resolution measureadopted. allowed for the normal functioning of its subsidiary in Portugal, given its protection under the Banco dePortugalalsoparticipatedinPopularEspañol’spre-resolutionprocess,which that ledtotheSSM'sapprovalofoperation. instrumental forcompletionofthisprocesson the forecastdate,by assuming a proactiverole assessment ofthePortuguesebankingsystem.BancodePortugal'sactiveinterventionwas external the affecting uncertainty the eliminated process this of end The 2017. in intervention Completion ofthesaleNovoBancowasonecornerstonesdePortugal's reinforce thebankingsystem'sresilienceandconsequentlyfinancialstability. this involved veryactive participation atSingleSupervisory Mechanism (SSM) level, whichhelped institutions, significant of case the In groups. banking Portuguese main the targeting specifically In 2017awidesetofsupervisory actions wasdeveloped,includinganumberofmeasures ty definition. Source: BancodePortugal.|Notes:NPLmeansnon-performingloans.InformationonNPLsfollowstheEuropeanBankingAuthoritydefinition. Table I.2.1•Portuguesebankingsystemindicators Programme. the post-programme monitoring associated with the EU/IMF Economic and Financial Assistance Banco dePortugalalsoparticipatedintheIMFannualArticleIVconsultationwithand Prudential supervision Return onassets(ROA) Capital ratio(CET1) Asset quality: Loan-to-deposit ratio NPL coverageratio NPL ratio Dec. 14 102.1 11.3 -1.3 n.d. n.d. Dec. 15 96.1 40.8 17.5 12.4 0.2 Dec. 16 95.3 45.3 17.2 11.4 -0.6 Dec. 17 92.6 49.3 13.3 13.9 0.3 33 Financial stability 34 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 development. services via digitalchannelsinPortugal, identifyingthemainobstaclestotake-upandmarket Portugalpublishedareportonavailability,contractinganduseofbankingproducts de In acontextofgrowingusedigitalchannelsforbankingproductsandservices,Banco supervision. reinforcement ofbankcustomerrightsandthewideningscopebankingconduct and creditintermediaries'activities.Thisregulatoryframeworkresultedinanincreaseand assessment creditworthiness consumer credit, of types all for and staff; institutions' the of skills minimum bankingservices;withregardtomortgagecredit,thecompensationandtechnical implementation ofEuropeanUnionlegislativeacts,covering,withregardtopaymentaccounts, Banco dePortugaldevelopedaseriesofregulatoryinitiatives,withinthescope which wereparticularlycomplexandimportantforthesystem. statutory changes,overthecourseof2017morethan115processeswereanalysed,some In addition,withregardtoauthorisationprocedures,theacquisitionofqualifyingholdingsand liquidity ratiosofthemaininstitutionsandstabilisationdepositscollected. a strengtheningofinstitutions’liquidityposition,whichtranslatedintoanimprovementinthe In turn,themonitoringofdeleveragingplansandrequestingcontingencyledto 15. 3, reinforcing its role in promoting financial information and training for bank customers. By using Banco de Portugal launchedthenew mitigate securityrisks by BancodePortugal – entitled Inclusion. In addition,areportwasdevelopedwithinthescopeofFinCoNet–whichisvice-chaired the invitation to participate as a non-G20 member country in G20's Global Partnership for Financial In international banking conductsupervisionfora, Banco dePortugal’s work wasrecognisedwith of therulesapplicabletoretailbankingmarkets. credit issues. It also initiated 55 administrative offence proceedings to penalise serious breaches and determinations requiring the correction of the irregularities detected, mostly on consumer Following on from its supervisory activities, Banco de Portugal issued 753 specific recommendations instruments. more issues,focusinginparticularonconsumercredit,minimumbankingservicesandpayment institutions to verify compliance in terms of their activity in branches and central services, covering Banking conductsupervisionbyBancodePortugalinvolvedmore(on-site)inspectionsof totalling 9,501). received (8.1%morethanin2016,totalling15,282)andadvertisingmediaanalysed(10.8%more, complaints of number the in rise a with intensified, Portugal de Banco by supervision 2017 In identification datathroughvideoconference. for theopeningofbankaccountsexclusivelyatadistance,andcustomersmayverifytheir while enablingthemitigationofnewrisks,BancodePortugalamendedNoticeNo5/2013toallow products and services via digital channels and meet bank customer's expectations and needs, Banking conductsupervision https://clientebancario.bportugal.pt/sites/default/files/2017-10/QuestCanaisDigitais2016.pdf (onlyavailableinPortuguese) at download for available (2016), Portugal em digitais canais nos bancários serviços e produtos de Comercialização entitled are report a questionnaire in this published of results The institutions. supervised to sent questionnaire a in collected information the from benefited publication This 15 So as to mitigate any regulatory barriers identified in the marketing of banking of marketing the in identified barriers regulatory any mitigate to as So , preparedbyaFinCoNetworkinggroupchairedBanco dePortugal. Online andmobile payments: Anoverviewofsupervisorypracticesto Portal doClienteBancário(Bank Customer Website),Chapter . previous year). process whichhadreceivedanadministrativedecision in2016(andthuswasnotconsideredthenumberofdforwardfrom proceedings carrie Note: (a)Includesanewdecisiondeliveredin2017 followingreferralofthecasebyCompetition,RegulationionCourtregardinga andSupervis Table I.2.2•Administrativeproceedings initiated, ledtoareductioninpendingproceedings(TableI.2.2). year, increased further considerably. This, in parallel with a decline in the number of proceedings overall numberofproceedingssettled,whichhadalreadyincreasedmarkedlyintheprevious Legal enforcementrecordedimportantprogressasregardslargeandcomplexproceedings.The financial institutions. in holdings qualified of acquisition the of context the in and entities supervised of obligations site supervisoryactivity,bothintermsofongoingmonitoringcompliancewiththepreventive off- and on-site intense particularly continue to possible also was it intervention Portugal's de Banco of domain specific this in parallel, In laws. draft preliminary of number a of tothe preparation activecontribution made an Coordination Committee in the context of the FATF assessment and the also AML/CFT the of work dePortugal Banco prevention. activity financial and sophistication ofBancodePortugal'ssupervisorymodelintermsML/TFandillicit effectiveness the recognised which (FATF), Force Task Action Financial the by system financing participation intheassessmentofnationalanti-moneylaunderingandcounterterrorist In terms of preventive supervision of ML/TF, Banco de Portugal successfully concluded its investigations onmattersofcommoncompetence. Furthermore, BancodePortugalcooperatedwithpoliceandjudicialauthorities,participatingin activity. financial pursue to authorised not entities 30 to warnings public and offence, criminal of signs for Republic Portuguese the of General Prosecutor the to notifications 13 proceedings, administrative 14 of initiation the to led These proceedings. 193 in inquiries on-site conducted and off-site Portugal de Banco activity, financial illicit of repression and prevention of terms In Week Training Financial first (30 October-3November). the of holding the to led entrepreneurs), social and enterprises already existingpartnerships(schoolaudiences,ownersofsmallandmedium-sized the with Sindicato dos Jogadores Profissionais de Futebol) to address new target audiences that, jointly launched (withtheComissãodeCoordenaçãoeDesenvolvimentodaRegiãoNorteand the jointly with the other financial supervisors. Within this scope, new strategic partnerships were Banco de Portugal participated in National Plan for Financial Education initiatives, promoted courses hostedbyBancodePortugalacrossthecountry,throughitsregionalnetwork. training financial in increase an by accompanied was effort This audiences. target different its of the newwebsiterenewedcontentpresentation,thusmeetingmoreadequatelyneeds more advancedtechnologies,asimpleranddirectlanguage,intuitivebrowsing, Legal enforcement Proceedings settled Proceedings initiated Proceedings carriedforwardfromthepreviousyear Proceedings pendingattheendofyear Overall indicators 2013 134 183 134 85 2014 128 134 163 99 2015 283 171 372 82 2016 217 276 382 441 2017 271 154 441 325 (a) Δ 2017-2016 -122 -116 59 54

35 Financial stability 36 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 first accountsandtheanalysis ofcertainassetsalesthatrequiredBancodePortugal'sopinion. the activity of Oitante, S.A. was monitored, particularly in regard to the closure of the company's the determination of the resolution perimeter. Also with regard to the BANIF resolution process, out theassessmentslaiddowninresolutionregimeand theapprovalofdecisionsrelevantto of thebank's approval the accounts for2015,BancodePortugal'sselectionoftheindependent entitytaskedwithcarrying start,following to proceedings winding-up judicial the for fulfilled yet beendecidedbytheSingleSupervisoryMechanism, necessaryconditionswerematerially decisive progress.Althoughtherevocationofbank'sauthorisation tocarryoutactivityhasnot In turn,theresolutionprocessofBanif–BancoInternacional doFunchal,S.A.(BANIF)alsomade appointed MonitoringCommittee. began onmonitoringtheexecutionofrespectivecontracts, includingtheinstallationof Fund's saleofitsholdinginNovoBanco,S.A.(Box2).Afterthecompletionsale,work In 2017, the resolution process of BancoEspíritoSanto, S.A. came to an end with the Resolution 2.4 System forgeneralgovernmentinearly2018. support systemstoensuretimelycompliancewiththerequirementsofAccountingStandards tothe the adapt to effort dePortugal an was there 2015, since government general in included funds autonomous byBanco provided support financial and administrative the regards As for theexerciseofitstasksasshareholderNovoBanco,S.A.andOitante, As farastheResolutionFundisconcerned,BancodePortugalalsoprovidedsupportneeded Guarantee Fund. assessments weremadeoftheinstitutions'datamodelsondepositsguaranteedbyDeposit The IT tool for repayments to depositors by the FGD and the FGCAM was concluded, and in-depth participating institutionsandcarriedouttheproceduresforcollectingthesecontributions. resource management, set the relevant parameters for computing the contributions owed by the financial in cooperated it Furthermore, (FR). Fund Resolution the and (FGCAM) Fund Guarantee the smoothoperationofDepositGuaranteeFund(FGD),MutualAgriculturalCredit In 2017 Banco de Portugal provided the technical and administrative services required for Espírito Santo,S.A. liquidation committees appointed for the purpose, especially the complex winding-up of Banco winding-up proceedings, under the responsibility of State commissioners, judicial liquidators or 20 monitored also Portugal de Banco institutions. credit significant of bodies supervisory and credit institutionsand the reassessment of the suitability of the membersof management joint actionisnecessaryforthedraftingofproposalswithdrawalauthorisation Banco de Portugal and the ECB continued to be deepened, given that, in the context of the SSM, management and supervisory bodies of supervised institutions. The relations in this field between proceedings wereconductedforapossiblereassessmentofthesuitabilitymembers institutions. payment and companies financial Two institutions had their authorisations withdrawn, while, based on supervenient facts, 32 institutions, credit of authorisation the of In terms of non-sanctioning enforcement, there were 12 proceedings for the possible withdrawal Deposit guaranteeandresolutionfunds Resolution international organisations. seminars, conferencesandbilateralmeetingsorganisedbyitsforeigncounterpartsother During theyear,due to itsexperienceinthe area of resolution,BancodePortugaltook part in contributions for2017. periodical the of delivery and collection specification, the in participating Fund, Resolution Single Also withintheSRM,BancodePortugalprovidedsupportnecessaryforoperationof represented atthehighestlevel. Resolution inLisbon.ThisinitiativeinvolvedtheparticipationofPortuguesecreditinstitutions, work the prepare to for 2017, the SRB and Banco de Portugal organised the 2nd Industry Dialogue on Banking and operations SRM's the of year full first the reviewing of goal the With as definedbytheSRB. to anyresolutionmeasurebutwasincludedintheperimeterofsaleBancoSantander,S.A. branch ofthisbankislocatedinPortugueseterritory.BancoPopularPortugal,S.A.wasnotsubject Banco de Portugal took part in the resolution process of Banco Popular Español, S.A., since a up orupdatingtheresolutionplansofmainPortuguesebankinggroups. also tookanactiveroleintheworkofSRB'sInternalResolutionTeams,essentiallydrawing It methodologies. and practices resolution of definition the for (SRB) Board Resolution Single the its participationonthedecision-makingbodies,committeesandworkinggroupscomprisedin In relation to the work within the Single Resolution Mechanism (SRM), Banco de Portugal intensified 37 Financial stability Box 1 • Banco de portugal within the european financial supervision architecture Within its mission to safeguard financial stability, Banco de Portugal operates today in a context marked by the institutional and regulatory framework of the European Union and, more specifically, the Banking Union.

The financial supervision architecture of the European Union consists of four levels: (i) regulation; (ii) microprudential supervision; (iii) macroprudential supervision; and (iv) resolution. Each of these levels comprises the competences exercised by the national supervisory authorities.

At the regulatory level, the European System of Financial Supervision (ESFS) began operations in 2011. The ESFS is based on a sectoral model, comprising the three European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – and the European Systemic Risk Board (ESRB), a cross-cutting entity responsible for macroprudential oversight, chaired by the President of the European Central Bank.

Similarly, the Banking Union was created, based on a banking prudential supervision pillar, the Single Supervisory Mechanism (SSM); a bank resolution pillar, the Single Resolution Mechanism (SRM); and its third pillar, still under development, the creation of a European deposit insurance scheme.

These considerable achievements within the European institutional framework in turn go hand in hand with significant progress in terms of financial legislation (specifically banking), with the approval of several important legal acts (inter alia, CRD IV, CRR and BRRD).

Although the work of the ESAs has mainly centred on prudential regulation and supervisory convergence, these last few years have seen an increasing focus on banking conduct supervision, most specifically on standards of conduct in the sale of financial products. Banco de Portugal provides Portuguese representation in the EBA in this field. European Union legislation on the sale of financial products establishes separate rules for the banking, market and insurance sectors, and has clarified their scope of intervention in terms of supervision.

Also within the ESFS, the ESRB – with macroprudential policy responsibilities within the European Union financial system – contributes to the prevention or mitigation of systemic risks to financial stability. The ESRB was assigned non-binding intervention tools, and may give addressees warnings and recommendations, which must be implemented according to a “comply or explain” mechanism. Central banks play a key role in the ESRB’s organisational and operating model. The large majority of voting members in the ESRB’s General Board (which makes all the decisions necessary for the performance of its tasks) come from central banks, including the ECB’s President and Vice-President and the Governors of national central banks. This structure thus recognises the key importance of central banks for financial stability in the European Union, without prejudice to the growing need for coordination among sectoral supervisory authorities. In terms of macroprudential supervision, the role of the ESRB must also be coordinated with the macroprudential powers conferred on the ECB under the SSM. Indeed, the SSM Regulation confers on the ECB both microprudential competences and the powers of a macroprudential authority.

In turn, the SSM operates under the aegis of the ECB, which has specific tasks relating to the prudential supervision of credit institutions subject to the SSM, without prejudice to the cooperation mechanisms which confer on competent national authorities a particularly important role in monitoring and supervising less significant institutions. Thus, the microprudential supervision pillar is built on strong European integration, as the ECB was assigned relevant powers and national authorities actively participate in a supervisory model led by the ECB, regardless of the size of supervised institutions. Banco de Portugal has been part of the SSM since its creation, on 4 November 2014. Activities and Financial Statements 2017 • Annual Report Activities and Financial Statements de Portugal Banco 38 prevention ofmoneylaunderingandterroristfinancing. the and framework) regulatory European the with compliance (specifically customers their and institutions financial between relations of supervision the to related powers retain authorities proactive participation at European level in the pursuit of public interest. In addition, national each MemberState.Thiswouldhelpnationalauthoritiesachievethedesiredlevelofpromptand of circumstances specific the to prejudice without extent, fullest the to optimised and used are background, itisimportanttoensurethatexistingmechanismsofsupranationalrepresentation this Against authorities. European with work effectively and cooperate closely to them for is it important how underlines also it fields, respective their in authorities national of intervention of ECB andtheSRBwithinBankingUnion).Eventhoughthistransformationreducesscope of ESAs),andischaracterisedtodaybytrueEuropeansupervisoryresolutionauthorities(the To sum up, the European model has evolved from mostly regulatory powers (the establishment national resolutionfinancingarrangements). financing arrangements. The SRF has provided these arrangements since January 2016 (replacing responsible for resolution decisions where measures applied do not require the use of resolution –which groups significant less and are subjecttothesupervisionofNRAsunderSRMRegulation–theseauthoritiesonly Union Banking the within States Member in established less significant over powers institutions withcross-borderactivitieswithintheBankingUnion.Secondly,evenforotherentities full resolution has SRB the institutions, significant with as Firstly, institutions. significant less over even autonomous, fully not and limited are (NRAs) authorities prejudice to the direct responsibilities of the SRB. In addition, the powers of national resolution directly responsible for the supervision of a share of thePortuguese banking system, without The Portuguesebankresolutionauthority(BancodePortugal,underthetermsoflaw)is financed bycontributionsfromparticipatinginstitutions. (SRB), and a single mechanism to fundresolutionmeasures, the SingleResolution Fund (SRF), Banking Union. The SRM comprises a single resolution authority, the Single Resolution Board ensure theresolvabilityandorderlywindingupofcreditinstitutionsinMemberStateswithin In turn,theSRMRegulationestablishescreationofanintegratedinstitutionalframeworkto 39 Financial stability Box 2 • Sale of Novo Banco In 2017, Banco de Portugal completed the work arising from the resolution measure applied to Banco Espírito Santo, S. A. in August 2014. Following analysis of the offers received at the end of 2016, on 4 January 2017,16 Banco de Portugal invited Lone Star to deepen the negotiations, while allowing all other potential investors to improve their offers. All the investors had the opportunity to complete complementary and confirmatory due diligence processes and to improve their offers under equitable conditions.

The offer presented by Lone Star was deemed the one that best fulfilled the assessment criteria in the tender specifications for the sale. As a result, on 31 March,17 Banco de Portugal decided to choose Lone Star to complete the sale operation of Novo Banco. On the same day, Banco de Portugal announced the terms of the sale operation, which were conditional on the necessary regulatory authorisations, particularly from the European Commission and the European Central Bank, as well as on Novo Banco’s execution of a liability management exercise.

On 18 October,18 Banco de Portugal and the Resolution Fund completed the sale operation of Novo Banco to Lone Star through the new shareholder's injection of €750 million, which was followed by a new capital injection of €250 million at the end of the year. Novo Banco is owned by Lone Star and the Resolution Fund, with holdings of 75% and 25% of the share capital respectively. The operation led to a significant reinforcement of Novo Banco’s share capital, bringing to an end the bridge status applying to the bank since its creation, and eliminated an uncertainty which was holding back the external assessment of the Portuguese banking system.

The sale process – open, transparent, competitive, and with international reach – respected the demands of the European Central Bank and the European Commission, and enabled the entry of new investors into the financial system, diversifying its sources of financing.

With the conclusion of this sale, the purposes underlying the resolution of Banco Espírito Santo, S. A. were fully met. Despite the irreparable financial imbalance and the imminent interruption of activity faced by Banco Espírito Santo, S. A. in 2014: (i) most of the activity of one of the most important financial institutions in the Portuguese economy continued; (ii) the depositors were protected and did not suffer any losses; (iii) the financing capacity to companies and households was preserved. In other words, the stability of the Portuguese financial system was preserved.

16. See Banco de Portugal's press release of 4 January 2017. 17. See Banco de Portugal's press release of 31 March 2017.

Activities and Financial Statements 2017 • Annual Report Activities and Financial Statements de Portugal Banco 18. See Banco de Portugal's press release of 18 October 2017. 40 General forBudgetandten otherbodiesthatcompilegeneralgovernmentstatistics; (ii)the concluded threeprotocolagreementswithrespectively: (i)StatisticsPortugal,theDirectorate- To foster the quality of statistics produced on the Portuguese economy, Banco de Portugal international fora. and aSupplementtotheStatisticalBulletin,featuringstatisticalarticlespresentedinnational – 2012-2016 between Portugal in corporations non-financial of analysis sectoral the and 2015, sector, the transport sector, profitability of Portuguese and European enterprises between 2006- 2016. ItalsopublishedfourCentralBalanceSheetStudies – onthemanufactureofbeverages IMF, OECDandBIS)onapproximately716 thousand statistical series, i.e.6.2%morethan in in theStatisticalBulletin.BancodePortugalreportedtointernationalbodies(ECB, EUROSTAT, course of the year, it published around 290 thousand statistical series in BPstat and 7 thousand 19. Banco dePortugalfullycompliedwiththetargetssetinitsStatisticalActivityPlanfor2017. international technicalmeetings. In thecourseofyear,17workingpaperswerepublished,presentedordiscussedinover100 macroeconomics, and sector financial the between international trade,theBaselIIIleverageratiorequirement,andhousepricesinPortugal. link the risk, credit corporate borders, the ineducation, macroeconomic impact of uncertainty, GDP developments, spillovers of prudential policy across taxes,investment wealth cycles, business survival, and creation firm justice, looking into several strands of research on the Portuguese economy: productivity in civil Banco dePortugal’sEconomicStudiesseriesfeaturedessayswrittenbyin-houseresearchers anduncertainties and thechallenges trade, surrounding potentialoutput. ofinternational and challenges gains the firms, of monetarypolicyinthePortugueseeconomy,savingandinvestmentdynamics topics importantforabetterunderstandingofthePortugueseeconomy:distributionmechanisms The and policiesinPortugaltheEuropeanUnion. as partoftheeuroarea(itsconstraintsandsustainability),futurepublicinstitutions Portugal in growth economic stability, financial and policy monetary for challenges new 2020: to the Strategic Plan. The agenda sets out three priority fields for in-house analysis and research up In 2017theBoardofDirectorsapprovedBancodePortugal’sresearchagendaforduration fosters awarenessandpublicdiscussiononthePortugueseeconomyEuropeanintegration. statistics arekeytomonetary,economicandprudentialpolicyadvicetheirpublicationhelps disseminates monetary, financial, exchange rate and balance of payments and statistics. compiles Research authority, and statistical national as role its in and, system financial the and economy Banco dePortugalconductsanalysisandresearchonthePortugueseeconomy,euroarea 3.1 3 Economic advice andopenness For furtherdetailsonBancodePortugal’sstatistical activitiesin2017, seethePlanandsectoralreport availableonitswebsite. Economic Bulletin,inadditiontoanalyticaltextsandmacroeconomicprojections,focusedon to society Research andstatistics 19 Inthe 41 Economic advice and openness to society 42 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 and businessassociations,itorganisedtwosessionsofthe6 firms Targeting investment. on conference a hosted it (EIB), Bank Investment European the with macroprudential policyandaconferenceonriskmanagementincentralbanks.Inconjunction credit registersforresearchpurposes.TogetherwiththeECB,itorganisedaconferenceon central banks on structural reforms, and a workshop on data produced by national central in theEuropeanEconomicAssociationCongress,ameetingwithSpanish,FrenchandItalian included conference the ESCB Ithosted stability. financial and sector, financial the in officers senior of remuneration intermediation, financial policy, monetary on conferences specialised With aviewtosparkingdebateonkeyissuesrelateditscorefunctions,BancodePortugalheld LEI, tointroducefirms,banksandassociationsinPortugal. bodies andtheGlobalLEIFoundation.ItalsohostedconferenceMeetMarket–TheUsesof (LEI ROC), which gathered representatives of financial regulators from 27 countries, international this scope, it hosted the Legal Entity Identifier Regulatory Oversight Committee’s plenary meeting single and universal identifier of entities, which is internationally accepted and recognised. Within a (LEI), Identifier Entity Legal the of development the foster to continued also Portugal de Banco external researchers. end of the year, BPLim was involved in 41 scientific projects, 7 of which exclusively undertaken by information onthePortugueseeconomyavailabletoin-houseandexternalresearchers.Asat In 2017 Banco de Portugal’s Microdata Research Laboratory (BPLim) started to make granular the qualityandcomprehensivenessofDatabaseBankingAccounts. Portuguese firms, and corporate transactions with of non-residents. Progress was made position to improve financial and economic the securities, credit, on – basis transaction-by-transaction and on anentity-by-entity – information granular with datasets specifically, more responsible, Banco dePortugalstrengtheneditsintegratedapproachtomicrodatabasesforwhichitis data foranalyticalandresearchpurposes.ItsfirstmeetingwasheldinLisbon. Granular Data(INEXDA),whichprovidesaframeworkwhoseaimistofacilitatetheuseofgranular established theInternationalNetworkforExchangingExperienceonStatisticalHandlingof Together withcentralbanksfromEUcountriesthatarepartoftheG20,BancodePortugal Institute andStatisticsPortugal,inthefieldoftourismstatistics. Portuguese Insurance and Pension Funds Supervisory Authority; and (iii) the Portuguese Tourism landscape. Furthermore,itheld36seminarsoneconomicresearch. Sheet Database,inVilaRealandÉvora,focusingonthemodernisationofPortuguesecorporate th ConferenceoftheCentralBalance- developing countries(TableI.3.2). which focuses on theactivitiesdevelopedinconjunctionwith counterparties in emerging and In 2017 Banco de Portugal launched a new regular publication: the Annual Report on Cooperation, Credit CentralRegisterandtheoperationofretailbanking markets. the about asked mostly public The system. banking national the to related clarifications other The saleprocessofNovoBanco,S.A.,wasthemostdiscussedtopicwithmedia,followedby software wasimplemented,on2May. Source: BancodePortugal.|(a)Sinceitslaunch,on8February.(b)10March.(c)theclientrelationshipmanagement Table I.3.1•Communication:mainindicators|2017 statistical information(TableI.3.1). rules applicabletoretailbankingproductsandservices,theservicesprovidedpublic statistical pressreleases)and28explainers–text-based,infographicvideoformatsonthe In the course of the year, it published 232 press releases across its channels (including 124 a newBankCustomerWebsite,featuringmoreaccessiblelanguageanduser-friendlywebdesign. social networks, by creating official Twitter and YouTube accounts, and, in November, it launched diversified its communication channels, formats and contents. It has consolidated its presence in In accordance with the strategic plan for communication adopted in 2015, Banco de Portugal has the media and to recognise improvement opportunities in terms of institutional communication. software, which helped increase the promptness and quality of feedback provided to the public and also adoptedastakeholdermanagementmodel,supportedbyclientrelationship communication and socialresponsibilitytasks,aswelltheMoneyMuseum’sprogramming.It Portugal establishedtheCommunicationandMuseumDepartmentin2017,entrustingitwith With a view to developing an integrated and consistent communication policy, Banco de performing thepublicinteresttaskentrustedtoitanddischargeofaccountability. is keyto communication andtransparent timely that realisation the reflecting counterparties, Banco dePortugal provides all pertinent information on its activities to the public andits 3.2 Website

15,117,198 webpages: 2,049,933 Viewed Viewed Users: Users: Communication andstakeholdermanagement

Consultations: Statistical series 2,291,690 released: BPstat 287,465

Impressions: Twitter 773,400 Tweets: 907 (a)

Impressions: 2,006,007 LinkedIn Posts: 235

Youtube New videos: 35,760 Views: 31 (b)

Requests from Requests from Requests from journalists: E-mail the public: the public: 245 4,012 (c)

Telephone Duration 80,325 (min.): 28,313 Calls:

43 Economic advice and openness to society 44 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Statistical Bulletin Supplements tothe Statistical Bulletin Spillovers Coincident Indicators Economic Studies Banco dePortugal Economic Bulletin Official Bulletin Annual Report Table I.3.2• Source: BancodePortugal.|(a)PT–Portuguese; EN–English. Central BalanceSheetStudies #Lusofonia Countries andTimor-Leste Portuguese-speaking African Economic Developmentsin Cooperation (NEW) Annual Reporton Coins Bulletin onBanknotesand Report onCashIssuance Report onPaymentSystems Monitoring Report Retail BankingMarkets Conduct Supervision Summary ReportonBanking Supervision Report Banking Conduct Portuguese BankingSystem Financial StabilityReview Statistical ActivityReport Statistical ActivityPlan Publication

Regular publications|

Publishes methodologicalnotesandanalysisonstatisticaldata economy andotherindicators Presents BancodePortugal’sstatisticsonthePortuguese promoted byBancodePortugal Publishes research,economicanalysisandevents private consumptioninPortugal Publishes thecoincidentindicatorsforeconomicactivityand external researchers Banco dePortugal’seconomists,frequentlyco-writtenby Publishes theoreticalandappliedstudiespreparedby releases macroeconomicprojections Provides adetailedanalysisofthePortugueseeconomyand regulatory capacity Comprises alllegalactsproducedbyBancodePortugalinits statements Describes BancodePortugal’sactivitiesandfinancial and financialinformationonfirmsinPortugal Sheet Database,BancodePortugal’sdatabasewitheconomic Publishes analysisondatacollectedbytheCentralBalance economies oftheeightPortuguese-speaking countries Presents individualandaggregateindicators onthe their economicandfinancialrelationswithPortugal Portuguese-speaking AfricancountriesandTimor-Leste Provides ananalysisoftheeconomicenvironmentin counterparties inemerginganddevelopingcountries Describes BancodePortugal’scooperationworkwith Discusses cash-relatedtopics indicators Describes BancodePortugal’scashissuanceactivitiesandmain payment systems Presents themostrelevantfactsonoperationof structured deposits,mortgagecreditandconsumer Presents developmentsinmarketsforsimpletermdeposits, Report Published betweenissuesoftheBankingConductSupervision banking marketssupervisioninthefirsthalfofeachyear. Provides summaryinformationonBancodePortugal’sretail in termsoffinancialinformationandtraining banking markets, as well as on Banco de Portugal’s initiatives Provides informationontheregulationandauditofretail environment leverage, aswellotherinformationonthemacroeconomic quality, liquidityandfunding,profitability,solvency based onindicatorsthebalancesheetstructure,asset Reports developmentsinthePortuguesebankingsystem, financial system Assesses emergingrisksinthePortuguesemarketsand statistical authority Describes BancodePortugal’sactivitiesasnational Sets outBancodePortugal’sstatisticalobjectivesandpriorities 2017 Objective – – Monthly Semi-annual Monthly Quarterly Quarterly Monthly Annual Annual Annual Annual Semi-annual Annual Annual Annual Annual Annual Quarterly Semi-annual Annual Annual Frequency PT andEN EN PT andEN PT andEN PT andEN PT PT andEN PT andEN PT andEN PT andEN PT andEN PT PT andEN summary only. of theexecutive English version PT |Note: PT PT andEN summary only. the executive version of English PT |Note: PT andEN PT andEN PT PT PT andEN Language* Source: BancodePortugal. Accounts Database ofBanking Services Table I.3.3• district agencies.Accordingto thesurvey,generalsatisfactionratewas3.7(outof 4). the and delegations regional Madeira and Azores the branch, Porto the offices, cash Lisbon the Banco de Portugal carried out a public satisfaction survey on its face-to-face services provided in To highlighttheimportanceofmonetarypolicy,BancodePortugalorganised6 consultations totheCentralCreditRegister(TableI.3.3). In 2017demandforBancode Portugal’s servicesincreased further, particularlyintermsof more specificallyasregardsreportingofexternaloperationsandpositionsandsecurities. sector of activity as well as efficient ways to comply with Banco de Portugal’s reporting requirements, services, Banco de of corporate Portugal also releases individual economic and financialIn terms information and on the respective office. cash a as acts and institutions, financial against customers theft of personal identification documents to the banking system, reviews complaints made by bank information onaccounts,creditliabilitiesandtheprohibitionuseofcheques,reports loss/ releases it tasks: its of scope the in firms and households to services provides Portugal de Banco students from96Portugueseschoolsparticipated. €uro Students’ Award edition, a joint ECB/Eurosystem NCB initiative, where 1,044 secondary school Central CreditRegister cheques Prohibition ontheuseof identification documents Information onpersonal institutions Complaints onfinancial activity) firms andtheirsectorof Tables (informationon Enterprise andSector Cash office transactions andpositions Reporting ofexternal Library Historical archive Services: mainindicators|2014-2017 Charts issued Charts issued Costumers Costumers institutions by participating Consultations Defaulters the ListofCheque Consultations of disseminated Requests Complaints received Firms covered services Visits tocustomer issued Summary charts Consultations Consultations Indicators 14,2 thousand 290 thousand 371 thousand 1,3 million 5,6 million 2014 thousand 6,523 5,869 508 130 404 – – –

13,5 thousand 350 thousand 135 thousand 364 thousand 78 thousand 5,9 million 1,5 million 2015 thousand 6,893 172,5 5,444 1,850 380 – 14,1 thousand 165 thousand 390 thousand 381 thousand 93 thousand 5 thousand 1,7 million 6,1 million 2016 thousand 7,033 190,5 5,523 1,291 304 15,3 thousand th 226 thousand 125 thousand 470 thousand 390 thousand Generation 36 thousand 2,1 million 6,5 million 2017 thousand 7,023 141,9 5,543 3,517 289 45 Economic advice and openness to society 46 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 às PopulaçõeseàRevitalização dasÁreasAfetadaspelosincêndios). €61,818 (€50,000onitsown and €11,819fromitsemployees)totheREVITAFund(FundodeApoio of this campaign, Banco de Portugal donated, on its own behalf and on behalf of its employees, raise funds to support those affected by the wildfires that hit the Leiria district in June. As a result to campaign in-house an ran Portugal de Banco initiatives, one-off other to addition in 2017, In of theZeroDesperdício(zerowaste)project,fosteredbyDariAcordarassociation. Banco de Portugal and its cafeteria concessions donated a total of 10,637 meals within the scope experience, overaone-weekperiod. job real into look first a them give to 2017 in school secondary Lencastre de Filipa Dona from It hasalsoimplementedajobshadowingproject,under whichitwelcomedsevenstudents Luísa DuclaSoaresprimaryschools. programme provided support to the Padre Abel Varzim, Sampaio Garrido, Maria Barroso and the AssociaçãoparaoVoluntariadodeLeitura.In2017BancoPortugal’svolunteersinthis by theCentrodeInvestigaçãoparaTecnologiasInterativasofUniversidadeNovaLisboaand Banco dePortugalhasjoinedtheVoluntáriosdaLeitura(ReadingVolunteers)programme,hosted receiving supportbythisassociation. Banco de Portugal) was published, whose receipts were entirely donated to children and families with Ajudaris, the second book participated inthisprojectandvisitedthehospitalonaweeklybasistoreadchildren.Also provide support to in-patient children in Dona Estefânia Hospital in Lisbon. In 2017, 17 employees Together withAjudaris,ithasimplementedtheLer+Histórias(ReadingStories)projectto 2017, included30studentsenrolledinlowersecondaryeducation. Banco dePortugalhasthreetutoringprogrammesinPortuguese,MathsandEnglish,which, In partnershipwithEPIS–EmpresáriospelaInclusãoSocial(EntrepreneursforInclusion), inclusion ofchildrenandteenagers. social promote chiefly which projects, responsibility social several runs also Portugal de Banco participants. of the Museum’s cultural and educational programme, 1,227 activities were held, totalling 25,265 one on archaeology. It welcomed62,859 visitors, averaging 305 visitors perday.Overall,as part and art on four exhibitions: temporary five hosted Museum Money the year, the of course the In Council withthe2014ValmorandMunicipalArchitectureAwardin2017. Church ofSãoJuliãowithaviewtohousingtheMoneyMuseumwasdistinguishedbyLisbon’sCity the Money Museum the ‘Numismatic of Event of the Year’ in 2016. The opening renovation project of the former the deemed Forum Numismatic The Portugal. in offerings and spaces cultural that standapartfortheirpromotionofphysical,socialandintellectualconditionsinaccessing entities or projects recognise to award annual this gives Cultura Acesso Accessibility’. ‘Integrated for Award Cultura Acesso the won also It Association. Museology Portuguese the by Year’ the of Museum ‘Best named was and Europe, of Council the of auspices the under Award’, Year the of Museum ‘European Forum’s Museum European the in finalist a was Museum Money the 2017 In been classifiedasanationalmonument. visitors theopportunitytoseeonlyknownremainingsectionofKingDinis’Wall,whichhas world, illustratedby pieces from Banco de Portugal’s banknoteand coin collection, and gives taking a contemporaryapproach, the Museum looksinto the historyofmoneythroughout which, throughout the year, maintained an extensive cultural and educational programme. While A keyaspectofBancodePortugal’sopennesstothecommunityhasbeenMoneyMuseum, Histórias da Ajudaris com o Banco de Portugal (Ajudaris Stories with 22. that arecommonorsharedwiththeEurosystem/ESCB(Table I.4.1). were carried out, 28 of which were exclusively domestic and five related to systems and processes control processes,aswellthesystemssupportingBancodePortugal’soperation,33audits In order to assess and ensure the effectiveness of the governance, risk management and internal 21. 20. Corruption). recommendations oftheConselhodePrevençãodaCorrupção(CouncilforPrevention Conexas the prepared Office Compliance the 2017 Committee andoftheGeneralDutiesConductEmployeesBancodePortugal).In dos Deveres Gerais de Conduta dos Trabalhadores do Banco de Portugal initiatives andmonitorscompliancewiththerulessetoutinRegulamentodaComissãodeÉticae and units and technical support to the Ethics Committee, carries out training and communication assigned to the ECB’s Compliance and Governance Office. This office provides tasks the advice with coinciding largely toemployees established, was intervention of scope Office’s Compliance The established, headedbytheDataProtectionOfficer(appointedon17October2017). was Office Protection Data The activity. its to applied be should regulation this how consider to The entryintoforceoftheGeneralData Protection Regulation inMay2018ledBanco de Portugal consultancy servicesonloancontracts. to perform its new tasks related to the supervision of credit intermediation and the provision of Supervision Departmentwasalsosubjecttostructuralandfunctionaladjustmentsenableit policy led to the creation of the Communication and Museum Department. The Banking Conduct into force in January 2018. The need to develop an integrated and coherent communication developed fortheResolutionDepartmentandLegalServicesDepartment,whichentered the Banking Prudential Supervision Department were restructured. New structures were also In lightoftheEuropeanframeworkmentionedabove,FinancialStabilityDepartmentand organisation byrestructuringtheAuditDepartmentandAdministrationServicesDepartment. functioning withcentralbankstandards.In2017itcontinuedtheprocesstoimproveitsinternal the needtoseparatetasksinvolvedinitspartbuildingBankingUnionandalign Banco dePortugalhasenhanceditsorganisationalandinternalgovernancemodelbothtomeet 4.1 4 Internalmanagement xas_-_relatorio_de_execucao_-_2016.pdf https://www.bportugal.pt/sites/default/files/anexos/documentos-relacionados/plano_de_gestao_de_riscos_de_corrupcao_e_infracoes_cone- https://www.bportugal.pt/page/plano-de-gestao-de-riscos-de-corrupcao-e-infracoes-conexas Decree-Law No81-C/2017of7July2017 Internal governance (Management Plan for Risks of Corruption and Related Offences), in light of the recent the of light in Offences), Related and Corruption of Risks for Plan (Management 21 The plan’s implementation report was published on Banco de Portugal’s website. (inPortugueseonly). (colocarlink2017)(inPortugueseonly). 20 Plano deGestãoRiscosCorrupçãoeInfrações (inPortugueseonly). (Regulation of the Ethics 22

47 Internal management 48 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Table I.4.1• contracts). Inaddition,there were 46internships. forsupervision which of labour of terminations 29 50% and retirements (85 Bank the left 114 and roles, stability financial and recruited, were members staff 78 year, the 2017-2020. of for course Plan the Strategic Over the in set 2020, by members staff active 1,700 of goal the with assignment or unpaid leave). In 2016 the number of staff members decreased 1,761 by 36, was in Portugal accordance de (Tables I.4.2,I.4.3andI.4.4),ofwhich1,701wereactive(60 wereonsecondment,publicinterest Banco by employed members staff of number the 2017 of end the At 4.2 assessment. policy, whichcoversinternalgovernance,organisationofactivities,recordingincidentsandrisk objectives, actors,responsibilitiesandoperationalmodeloftheriskmanagement As regards non-financial risk, Banco de Portugal updated the regulation establishing the principles, sensitivity tests)andforthemajorfinancialvariablesaffectingitsaccounts. Banco dePortugalalsoconductedmedium-termprojectionexercisesforrisks(including are part of Banco de Portugal’s balance sheet (provisions, reserves and profits) and risk coverage. that buffers financial of monitoring the by complemented shortfall, expected and risk at value as policy operations – were monitored through the calculation of several statistical indicators, such Overall developments in financial risks – mainly associated with asset management and monetary Banco de Portugal pursued a policy of integrated management of financial and operational risks. Sorce: BancodePortugal. Communication Purchases andlogistics Budget andaccounting Security Information technologysystems Human resources Statistics Payment systemsandmeans Cash issuance Prudential supervision Legal enforcement Reserve andfinancialassetmanagement Monetary policy Deposit guaranteeandresolutionfunds Governance, internalfunctioningandmanagementquality Human resources Audits| 2017 Total Domestic 28 1 1 2 4 2 2 1 1 4 2 1 1 4 2 – ESCB 5 1 1 1 1 1 – – – – – – – – – – Total 33 1 2 2 5 3 2 1 1 5 2 1 1 1 4 2 Age group Movements Active Supervisorytasks Source: BancodePortugal. On unpaidleave/secondment Gender Table I.4.3• tial supervision,bankingconductfinancialstability,legalenforcementandresolution. Source: Banco de Portugal. | Notes: (a) Excluding staff members on unpaid leave and public interest assignment. (b) Staff members in the fields of pruden- Total staff Table I.4.2• Secondment/on unpaidleave Technical-administrative staffandsupportservices to improve knowledge and enhance technical and management skills. In particular, a Programme entities external with partnership in initiatives as well as courses, development and training staff Through theBancodePortugal Academy(AcademiadoBancodePortugal),theBankcarriedout policy forstaffwasalsoapprovedandimplemented. teleworking general A unions. trade with negotiation of stages final its in now is and prepared, A proposalrevisingBancodePortugal’scompany-level agreement(AcordodeEmpresa)was bargaining instruments. There wasa0.75%salaryupdatein2017, inaccordancewiththebankingsector’scollective Source: BancodePortugal. Senior management Table I.4.4• Professional staff Middle management (a) Staffdevelopments:gender,movementsandagegroups| Staff developments| Staff:breakdownbyfunction| >=66 [56;65] [46;55] [36;45] [26;35] <=25 Terminations ofcontracts Retirements Recruitments Female Male (b) 1,733 1,676 2013 352 57 2017 2013 418 484 293 469 126 839 894 1,777 1,685 2014 64 69 378 Total 5 5 92 2017 1,777 1,696 2014 Male 900 114 579 140 2015 491 394 308 516 101 866 910 409 29 38 64 13 48 81 3 1,797 1,718 Female 2016 2015 861 662 134 431 522 314 320 546 109 864 913 31 17 17 79 10 65 37 70 1,761 1,701 2017 2017 1761 1241 440 Total 2016 131 274 60 505 288 353 570 112 884 913 60 55 72 30 62 9 ∆ 2017-2016 100% -19 -36 -17 2017 70% 16% 474 265 381 556 861 900 7% 3% 3% 9 % 11 74 29 85 78 49 Internal management 50 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 reached aprofitabilityof3.8%. million, €26.5 the of amount the 2017 to Plan, Defined-contribution – In Fund Pension the of fund. portfolio asset this for opted have members staff new of majority the as participants, 723 had – 2009 March after sector banking the in working started who staff for voluntary is that plan pension supplementary a – Plan Defined-contribution – Fund Pension the 2017, of end the At asset portfolioofthisfundhadaprofitability1.9%. the minimumlevelestablishedinNoticeofBancodePortugalNo12/2001(98.1%).In2017 above i.e. cent, per 102.2 – was Plan Defined-benefit – Fund Pension the of level funding overall area bondsand liquidity (82.5%),realestate(9.6%) and equity (7.9%). On the same date,the euro in invested million €1,939.1 to – amounted staff all covers which plan, benefits health the and – 2009 March before sector banking the in working started who staff covering fund pension a closed-end – Plan Defined-benefit – Fund Pension the of assets the 2017 December 31 at As knowledge sharing. the processes involved in recruitment, performance management, self-development and up New ITplatformssupportinghumancapitalmanagementwerealsoimplementedtospeed Management SchoolsinLisbon. and Economics main the from students final-year 100 around of presence the with academia, in The second Banco de Portugal Open Day was held to promote the Bank’s image and awareness was launched. orteammanagementandleadership.Inaddition,apilotmentoringprogramme specialisation and boosting theirpotentialusingprofessionaldevelopmentplanseitherthrough technical (Knowledge for Development) programme, aimed at progressively mapping employee skills As part of its strategic priorities, Banco de Portugal implemented the Programme (ProgramaAvançadodeLiderança)continuedformiddlemanagement. Mudança para a Excelência) was launched for top management and the Advanced Leadership for StrategicLeadershipandChangetowardsExcellence(ProgramadeLiderançaEstratégicae Assets AnalysisPlatform). de Microdados–BPLim)andanewapplicationforthe analysisofcollateraleligibility(Marketable technological platformtosupporttheMicrodataResearch Laboratory(LaboratóriodeInvestigação Work alsoprogressedontheprojectstodevelopanew Central CreditRegister,provideanew de Portugalstatisticswebsite–whichwillreplacetheBPstat website–alsocontinued. the MutualAgriculturalCreditGuaranteeFundand Mediator.WorkonthenewBanco the Portuguese-speakingcentralbankswebsiteandwebsites oftheDepositGuaranteeFund, Several websites managed by Banco de Portugal were redesigned: the Bank Customer Website, information intoasinglecorporatedatabasewithviewto reducing internalandred-tapecosts. In 2017theBankmadetechnologicalinfrastructureinvestments requiredtointegratebusiness communication. internal renewal andinprovidingsolutionstoincreaseproductivity,cooperationimprove Under theprogrammeDigitalBank2020,BancodePortugalhasinvestedintechnological management 4.3 Information systems,technologyand Conhecer para Desenvolver components anddigitaltransformationofthebankingsystem. IS/IT strategic and operational management, application solutions, infrastructural and security meeting was attended by representatives of 21 institutions 23. European SystemofCentralBanks.In2017BancodePortugalalsoorganisedthe1 to threats and cooperating with Portuguese and international organisations, namely the As regardscybersecurity,theSecurityOperationCentrebeganoperations,focusingonresponding organised theCentralBanker’sClubforIT(CBCIT)inPortotocelebrateits40 With aviewtosharingexperiencesandbenchmarkingamongcentralbanks,BancodePortugal of newEUregulationsandfinancialsystempractices. on cybersecurity, open to the financial system and focusing on governance issues, the application Netherlands, Norway,Portugal,Serbia,Sweden andSwitzerland,theBankforInternationalSettlements(BIS). The central banks of Austria, Belgium, Bulgaria, Cyprus, Denmark, Finland, Greece, Hungary, Iceland, Ireland, Israel, Luxembourg, Macedonia, Malta, 23 and discussed issues related to th anniversary.This st conference 51 Internal management

II Report and Financial Statements

1 Management Report 2 Financial Statements 3 Notes on the Financial Statements 4 External Auditors’ Report 5 Report and Opinion of the Board of Auditors

the secondparthighlightsmaincomponentsofProfitandLossAccount. The first part of the Report sets out the most important developments in the balance sheet, and the operationsperformedduringyearandtheirimpactonthefinancialstatements. The ManagementReport,whichaccompaniesBancodePortugal’sannualaccounts,presents opinion onthefinancialstatements(seeSection5). provisions ofArticle43thesameLaw,BoardAuditorspreparedareportandissuedan provisions laiddowninArticle46ofitsOrganicLaw(seeSection4),and,accordancewiththe The annualaccountsofBancodePortugalaresubjecttoanexternalaudit,pursuantthe Banco dePortugal(PlanoContasdo–PCBP). 2017 (seeSections2and3),whichhavebeenpreparedaccordingtotheChartofAccounts year the for statements financial the Portugal, de Banco of Law Organic the of 54 Article with The BoardofDirectorsBancodePortugalpresentstheManagementReportand,incompliance €-525million, was which wasalmostfullyoffsetbythereductioningeneralriskprovision. losses unrealised and operations financial of result of around €1billion, net the Furthermore, margin interest by driven €656million, reflecting the impact of the aforementioned increase in the monetary policy was securities portfolio. 2017 year the for Profit the ECB. asset purchaseprogramme(APP),inaccordancewiththedecisionsofGoverningCouncil namely fromthesecuritiesportfolioregardingBancodePortugal’sactiveparticipationin increase from2016,withanotablecontributiontheofmonetarypolicyassets, The balancesheetofBancodePortugaltotalled€153billionin2017,representinga€15 Presentation 1 Management Report 55 Management Report 56 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 1.1.7 Ownfunds 1.1.6 Otherliabilities 1.1.5 Intra-Eurosystemliabilities(net) 1.1.4 Banknotesincirculation 1.1.3 Otherbalancesheetassets (net) 1.1.2 Goldandforeignreserveseuroassets policy operations 1.1.1 Claimsandliabilitiesrelatedtomonetary TOTAL BALANCESHEET Table II.1.1 the analysesmadeinthisReport. items for the 2013-2017 period. The logic followed in the order of these items is the same as that of Table 1 shows the developments in the year-end positions of Banco de Portugal’s main balance sheet 1.1 Profit fortheyear Retained earnings Capital and reserves Capital andreserves Revaluation accounts General risk provision General riskprovision Provisions Liabilities to other entities denominated in euro Liabilities tootherentitiesdenominatedineuro Other liabilities Intra-Eurosystem liabilities Intra-Eurosystem liabilities Intra-Eurosystem claims Banknotes putintocirculation(net) Adjustments tocirculation Other claims IMF (net) Foreign reservesandeuroassets(net) Gold to monetarypolicyoperations Liabilities tocreditinstitutionsrelated Claims relatedtomonetarypolicyoperations Securities heldformonetarypolicypurposes Lending to credit institutions Lending tocreditinstitutions Developments inthebalancesheet

111,592 (29,471) 12,589 30,094 22,303 25,597 45,676 59,565 28,198 14,883 10,714 47,864 53,895 (5,895) 2013 (8,218) 8,015 1,728 1,483 7,758 3,322 7,629 1,439 6,031 (227) 253 386 288 – 105,608 (33,172) 14,789 21,466 23,299 33,556 32,873 54,638 31,920 21,410 12,147 31,191 36,462 (8,621) 2014 (3,589) 8,331 1,456 1,534 9,637 3,567 7,989 1,184 5,272 (252) 304 342 272 – 116,899 (36,315) (10,394) 14,837 25,390 24,686 35,276 35,139 61,705 35,080 23,308 11,968 26,161 16,690 42,851 2015 (7,712) 6,933 1,431 1,594 9,296 4,047 6,630 1,184 (333) 233 303 247 – 137,717 (38,945) (11,976) 16,957 13,437 32,643 25,661 38,109 48,977 11,027 13,011 71,588 37,636 24,606 13,503 22,372 32,254 54,626 2016 (5,649) 1,612 1,641 4,247 1,364 (397) 441 426 248 – 152,965 (42,528) (14,486) (13,865) 15,918 10,082 38,719 26,675 34,405 55,235 10,329 81,246 41,160 21,101 13,305 22,131 46,969 69,100 2017 1,753 1,729 3,727 9,370 1,521 (523) 656 711 232 2 Δ 2017-2016 EUR millions (1,039) (3,355) (3,704) 15,247 14,715 14,474 (3,641) (3,582) (2,510) (3,505) (8,216) 6,076 1,014 6,258 9,658 3,524 (125) (520) (698) (198) (241) 216 284 141 157 (16) 88 2 | (Charts II.1.3 toII.1.5). ECB the by 2016 March in announced as implemented, was II) (TLTRO operations refinancing term purchases under the APP maintained their fast pace, and the second series of targeted longer- In 2017,thenon-standardmonetarypolicyprogrammescontinued tobestrengthened,assecurities (to €13,865 million). liabilities in increase million €8,216 the by offset partly million), €69,100 (to assets in increase 2017 was €55,235 million, a €6,258 million increase from 2016, as a result of the €14,474 million The netvalueofclaimsandliabilitiesrelatedtomonetary policy operationsasat31December 1.1.1 Chart II.2• Chart II.1• EUR millions Gold Claims andliabilitiesrelatedtomonetarypolicyoperations 111 53, 14, 10, 12, 7 30, 1 2013 8 2013 , , 629 , 728 218 895 883 714 , 589 094 592 Foreign reserves and reserves Foreign Liabilities to other entities denominated in euro in denominated entities other to Liabilities Own Developments inthebalancesheet–mainliabilities(net)andownfunds Developments inthebalancesheet–totalandmainassets(net)| funds e uro assets uro 105 36, 21, 12, 14, 21, 1 2014 3 7 2014 (net) , 456 , , 589 989 462 410 147 , 608 789 466 Claims relatedtomonetarypolicyoperations 116 42, 23, 11, 14, 25, 6 1431 7 2015 2015 , , 630 712 851 308 968 , 837 390 899 Liabilities to credit institutions related to monetary policy Intra- Eurosystem Other liabilities balance s 137 16, 32, 13, 54, 24, 13, 5 1 2016 2016 , , 649 612 626 606 503 957 643 011 , 717 (net) h eet assets EUR millions T 152 15, 38, 13, o 69, 21, 13, 9 2017 1 tal 2017 , operations , 370 753 918 719 865

100 101 305 , B 965 alanc

Sheet

57 Management Report 58 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 the Bank’stotalassets. Eurosystem’s monetary policy. At the end of 2017, this portfolio totalled €46,969 million, 31% of central banks (NCBs) and the ECB, reflecting the principle of decentralised implementation of the included undertheaforementionedAPP.Purchasesofthese securitiesaremadebythenational the public sector purchase programme (PSPP), both still open to new purchases, which are of securitiesinthe portfolio and (ii) the third coveredbond purchase programme (CBPP3) and maturing the reflects only which of behaviour the purchases, new to closed currently CBPP2), securities marketsprogramme(SMP)andthecoveredbond purchaseprogrammes(CBPPand participation in various programmes decided by the Governing Council of the ECB, namely (i) the active Portugal’s de Banco reflects purposes policy monetary for held securities of portfolio The Chart II.4• Chart II.3• 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 5 , -20,000 000 Longer- Main 0 - 1 refinancing 3 term refinancing operations , 8 6 Securities heldformonetarypolicypurposes| Aggregates ofmonetarypolicyoperations| 0 – CBPP3 Securities – Securities 6 operations 2013 , 031 -10 - 7 - , 5 7 ,000 , 0 - 5 – 5 - 3 5 2

, CBPP and CBPP2 - 4 1 ,

3 6 9 , 6 8 5 7 8 9 - - 1 1 0 5 - 0 5

0 5 2 1 1 , 2014 0 0 272 2 1 0 0 , 3 3 9 Other lending operations lending Other (SMP, CBPP,CBPP2,CBPP3andPSPP) Securities heldformonetarypolicypurposes 5 , 0 5 6 5 , , 2 0 0 10,000 7 3 7 8 2 1 , , 7 5 5 5 16, 0 3 690 – PSPP Securities – Securities – 2015 1 20,000 6 1

, 7 SMP 6 , 9 6 0 0

2 8 1 2 , 0 EUR millions 2 3 2 , 0 3 3 1 , 4 EUR millions 1 4 1 32, 30 254 ,000 2016 Other liquidity‐ institutions credit of Deposits 3 2 , policy Total 2 5 4 securi 40,000 purposes absorbing operations ties held for 4 2 2017 , 6 9 monetary 4 46, 4 6 50,000 969 , 9 6 9 total of€22,131million. and 3years(ChartII.1.5). Attheendof2017,itemLendingtocreditinstitutionsreacheda less or 1 year of a maturity with operations refinancing longer-term and operations refinancing main the reducing institutions, credit to Lending item the within effect substitution a triggered the timeof at facility deposit the the allotment.Banks’adoptionofthesenon-standardoperations,which began inJune2016, on rate the and (MRO) operations refinancing main the on end oftwoyears.TheapplicableinterestrateforTLTRO-IIoperationswillbebetweenthe policy. TLTRO-II operations have a four-year maturity, with a possibility of repayment at the (TLTRO II),withtheadditionalgoalofstrengtheningEurosystem’saccommodativemonetary operations refinancing longer-term targeted of series second the of part as implemented were Furthermore, in regard to non-standard monetary policy operations, in March 2017 new operations sale ofsecurities. less potential impairment losses, not reflecting gains that may materialise in the case of the early All theportfoliosofsecuritiesheldformonetarypolicypurposesarevaluedatamortisedcost portfolio in2017,witha€463millionincreasefrom2016(reachingtotalof€3,408million). Additionally inthecaseofAPP,BancodePortugalalsostrengtheneditsCBPP3securities de Portugal’sbalancesheet(see1.1.7). Banco on buffers financial adequate holding by covered are risks These perspective. long-term by the Governing Council of the ECB for the Eurosystem and are monitored from a medium and Portuguese governmentdebt’srating.Theserisksare measured using the methodology decided the in improvement the by offset was volume their in increase the of effect the since risk, in securities component of this programme was not accompanied by a corresponding change government the in increase the risks, financial Portugal’s de Banco in developments of terms In in 2017). government debtsecurities(accountingfor69%and31%respectivelyoftotalincreaseinPSPP part relating to supranational securities grew more sharply than the purchases of Portuguese end of 2017), with the latter included in the non-shared-risk component at Eurosystem level. The of Portuguese government debt (accounting for 37%and63%respectivelyoftotalPSPPatthe million. This programme is divided into supranational securities and government securities, €40,923 decisions led togrowthof€14,509millioninthe overall PSPP levelin2017,reachinga total of billion per monthforthe rest of that year. In terms of Banco dePortugal’s participation, these ECB approved an overall purchasing rate of €80 billion per month until March 2017 and €60 the reflecting PSPP, Eurosystem’s decisions to extend purchases under the APP, after the Governing Council of the the under purchases shows 2017 for sheet balance Portugal’s de Banco

59 Management Report 60 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 the monetarypolicysecuritiespurchasesisignored(Chart II.1.6). always hadhigherlendingthanliquidityabsorption,even iftheliquidityinjectionmadethrough minimum reserve requirements) and in the deposit facilities, show that Banco de Portugal has of creditinstitutionsheldatBancodePortugal(including currentaccountsforcompliancewith (open marketoperationsandlendingfacilities),aswell developmentsinthecurrentaccounts institutions credit to lending of implementation decentralised the through system financial the Lastly, during2017,developmentsinoveralllevelsofliquidity injectedbyBancodePortugalinto | Chart II.6•Dailybalancesinregularfinancingandliquidity-absorbingoperations Chart II.5• EUR millions 13,000 18,000 23,000 28,000 33,000 38,000 43,000 48,000 -15,000 -2 15,000 25,000 35,000 45,000 3,00 8,00 -5 5,00 , 000 , 000 0 0 0 2013 2 , 115 40, 47, Regular financingoperations| 579 864 Main refinancingoperations Longer- Longer- Other lendingoperations 5 , 050 120 term refinancingoperations<=one-yearmaturity term refinancingoperations=three-yearmaturity Regular financingoperations 365 16, 2014 213 7 31, , 750 191 6 , 863 6 , 201 EUR millions 8 26, 2015 , 553 161 11, 407 Total ofLendingtocreditinstitutions Targeted longer- Targeted longer- Liquidity- 859 absorbing 1 22, , 339 term refinancingoperations-TLTROII term refinancingoperations-TLTROI 372 2 , 2016 812 operations 17, 362 79 20 22, 100 131 1 ,

012 20, 2017 921 financial situation. One of the agreements reached was the Agreement on Net Financial Assets Financial onNet (ANFA), theAgreement was reached the agreements of One situation. and financial economic present the given profitability, and risk between trade-off the from atEurosystem resulting level, established the agreements by allowed flexibility the within decisions investment Portugal’s de Banco reflect which euro, in denominated portfolio trading the and currency foreign fall intheoverallvalueoftheseassetsweredecreases inthetradingportfoliodenominated regarding the medium-term investment portfolio denominated in euro (25%). Contributing to the €3,593 million in the trading portfolio denominated in foreign currency (17%) and €5,329 million breaking downinto€12,179millioninthetradingportfolio denominated ineuro(58%ofthetotal), Banco dePortugal’sforeignreservesandeuroassetsnetted to€21,101millionattheendof2017, 2016 (ChartII.1.8). In 2017, Banco de Portugal’s portfolio of foreign reserves and euro assets fell by €3,505 million from Chart II.7• into, withtheaimofprofitingfromgoldassets. In 2017,goldswapsforforeigncurrencywereentered gold cameto€10,274million. for differences revaluation the 2017, of end the Revaluation accounts(ChartII.1.7)(see1.1.7).At of anequalamountinthebalancesheetitem the euro value’s counterbalance is a change unchanged at382.5tonnes.Thereductionin price ofgold.Thevolumethisreserveremained 2016, arisingfromthenegativetrendinquote at the end of2017,a€198milliondecreasefrom Banco dePortugal’sGoldreservetotalled€13,305million 1.1.2 1. Foreign reservesandeuroassets(net) Gold

PressreleaseoftheECB5February2016, ‘ECB explainstheAgreementonNetFinancialAssets’. EUR millions 10,000 15,000 20,000 25,000 5,000 Gold, foreignreservesandeuroassets(net) 1 betweenthenationalcentral banksoftheeuroarea,whichsetsrulesandlimitsfornon- 0 Gold reserveandquoteprice Acquisition cost(WAC) 10, 7683 3030 2013 714 12, 9116 3 2014 , 030 147 Revaluation differences Revaluation 11, 8 3 2015 , , 938 030 968 XAU/EUR (EUR/Per fine ounce of gold, right axis) 1 1 1 1 10 13, , , , , 600 700 800 900 300 200 100 000 3 2016 , , 030 503 472 Dec. 16 1 , 098 10 13, 3 2017 , , 030 274 305 X AU / EUR 1,20 0 200 400 600 800 1,00 0 0

EUR D 1 ec. , 082 17 61 Management Report 62 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 profitability ofthemanagement ofassets. the fundsinvestedandtaken inthesegoldswapoperations,whichcontributepositively tothe to relating currency foreign in denominated liabilities and assets the of effect net the reflecting currency, withthevaluepresentedinitemDepositsand othermoneymarkets(ChartII.1.9) Furthermore, asatDecember2017,thereareoutstanding goldswapoperationsforforeign and participationunitsintheBankforInternationalSettlements (BIS)(€256million). (€1,693 million),securitiesissuedbyparagovernmentaland supranationalentities(€1,061million) residents. Regarding type of issuer, the securities portfolio is comprised by government debt bonds 2017, mainly denominated in USdollars(81%), almost all of which are issued by non-euro area foreign currency tend to be in securities, representing around 84% of the total as at December In terms of composition by instrument, the investments in the trading portfolio denominated in 2017 comparedwith90%in2016and87%2015). mainly composedofUSdollars(around84%totalinvestmentinforeigncurrencyasatDecember The structureintermsofcompositionbycurrencydidnotchange2017,continuingtobe rate lossriskwascoveredbythegeneralprovision. Exchange account. Loss and Profit the impacting losses, rate exchange significant of realisation from December 2016). The sale of assets denominated in foreign currency in 2017 led to the investment decisionduringaperiodofappreciationtheeuro(up14%againstUSdollar €3,593 millionattheendofyearversus2016.ThiswasduetoBancodePortugal’sstrategic In regardtothetradingportfoliodenominatedinforeigncurrency,itfellsharplyby€2,490million €339 million. debt bonds accounted for €11,542 million and paragovernmental and supranational bonds for the total),mainlyissuedbyeuroarearesidents(€11,876million).Bytypeofissuer,government As inpreviousyears,thistradingportfolioisalmostcompletelymadeupofsecurities(98% the endof2016,whichessentiallyreflectedadecreaseinsecuritiesportfolio. As at December 2017, the trading portfolio denominated in euro fell €1,401 million (-10%) from • Chart II.8• monetary policyholdingsthatarerelatedtonationaltasksofEurosystemcentralbanks. Trading portfolios(denominatedineuroandforeigncurrency) 8 , 593 14, 1 2013 , 168 883 Foreign reservesandeuroassets(net)| 5 , 122 Medium- Trading portfolio term 13, 025 investment denominated 21, 2014 3 , 114 410 olio denominated portfolio 5 in , 271 euro 13, 121 in euro 23, 2015 4 , 747 308 5 , 441 EUR millions 13, Total Trading portfoliodenominatedinforeigncurrency 580 24, 6 2016 , 083 606 4 , 943 12, 179 21, 3 2017 , 593 101

5 , 329 from corecentralbankingactivity operations(monetarypolicyandassetmanagement). significance was the Accruals and prepaid expenses item, essentially relating to accrued revenue In theOtherbalancesheetassetsitem,asidefromnet IMFposition,theonlyotheritemof 1.1.3 Chart II.10• of typeissuerwasgovernmentdebtbondsbyeuroareaissuers(€5,268million). a result of inflows from the trading portfolio denominated in euro. The main component in terms This portfolio, with a total value of €5,329 million, increased €386 million from 2016, essentially as of securitiesdenominatedin euro, and valued at amortised cost less potential impairment losses. The medium-term investment portfolio (Chart II.1.10) is, as at 31 December 2017, fully composed • Chart II.9• Medium-term investmentportfolio 667 Other balancesheetassets 5 9 9 2 2013 2013 422 , , , , 122 339 989 761 Trading portfolio(euroandforeigncurrency)| Medium-term investmentportfoliobymaturity| 1 , 466 Up to1year Deposits and other money markets 668 15 16 5 201 2 2014 328 , , 981 271 , , 811 139 4 1 , 622 1 to5years 605 17 17 3 2015 2015 5 268 , , , , 026 868 599 441 1 , 809 Securities Over 5years 948 EUR millions 19 19 2 2016 2016 4 472 , , EUR millions , , 663 585 191 943 1 , 410 740 Total Total 14 2 2017 2017 15 5 , 828 243 , , 943 329 , 772 2 , 347 63 Management Report 64 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 related assets)(ChartII.1.12).Thesenetliabilitiesgrewby €6,076millionfrom2016. the net amount of TARGET account liabilities and Adjustments to circulation (banknote issuance reflects essentially million, €38,719 at standing (net), liabilities Intra-Eurosystem of value The 1.1.5 Chart II.11• Eurosystem andthewideningofaforementioneddifference. the in circulation increased of combination the reflects adjustments these in growth the years, adjustments totalled€41,160million(€+3,524fromDecember2016).Asinprevious circulation andbanknotesputintobyBancodePortugal.AsatDecember2017these Portugal’s share, as mentioned between above, and the positive difference between the banknotes withdrawn differential from the reflect circulation in banknotes the to adjustments The €26,675 million). to million €+1,014 by (increasing level Eurosystem at circulation in rise a reflecting circulation, Portugal (ChartII.1.11).Thisaggregatehascontinuedtogrowsincetheeuroenteredinto balance sheet, reflects the share of the Eurosystem’s banknotes in circulation allocated to The aggregate Banknotes in circulation, recorded on the liabilities side of Banco de Portugal’s 1.1.4 -10, -5, 35, 30, 25, 20, 15, 10, 5 , 000 000 - 000 0 0 0 0 0 0 00 00 00 00 00 00 Intra-Eurosystem liabilities(net) Banknotes incirculation Banknotes putintocirculationbyBancodePortugal CSM and ECB adjustments (in Other claims item) Banknotes incirculationandAdjustmentsto| 28, 22, -5, 2013 1 895 3 98 03 31, 23, -8, 2014 621 920 299 -10, 35, 24, 2015 0 6 394 80 86 from circulation Difference betweenbanknotesputinto/collected -11 37, 25, 2016 6 6 , 976 36 61 EUR millions 41, 26, -14, 2017 160 675 486

EUR millions Chart II.13• (Chart II.1.13). the settlement of operations that led to the above-mentioned decline in the trading portfolio increase in the item Liabilities to credit institutions related to monetary policy operations and the by offset partly are effects These liabilities). Other 1.1.6 (see accounts current government into circulationbyBancodePortugalandthereductioninliabilitiesassociatedwithgeneral put banknotes and circulation from withdrawn banknotes the between difference positive the of purchasessecuritiesheldformonetarypolicypurposes(outlinedabove),theincreasein arising fully from TARGET account liabilities. This increase is explained principally by the financing As at31December2017,intra-Eurosystemliabilitiesgrew€9,658millionfrom2016to€81,246million, Chart II.12• -90 -70 -50 -30 -10

Liabilities Claims 10 30 50 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 -81 -61 -41 -21 18 38 58 -1, ,500 ,500 ,500 ,500 ,500 ,500 ,500 500 Securities held for monetary policy purposes policy monetary for held Securities Liabilities to credit institutions related to monetary policy operations operations policy monetary to related institutions credit area euro to Lending B I ntra ank - n Intra-Eurosystem liabilitiesandmainoffsettingbalancesheetitems| Intra-Eurosystem claimsandliabilities| E o -59 u t 28 -30 e r 1 o

, i s s , 273 , 565 198 y sua ,094 s 2013 t e n m c e

i r abi e l ated l i t i e s as s e t s

( n e t ) -21 -54 31 1 , , ,466 252 , 920 638 2014 -61 -25 35 1 , , 235 , , 705 2015 080 390 Other and I n t r a EUR millions t - r Eurosyste ansf i n t r a e ‐ r E

o u f r foreign o m s y

l Intra- Banknotes Liabilities to other entities denominated entities other to Liabilities s i t abilities e -32 m

-71 r 37

e claims E 1 s , urosystem , 2016 643 e , 309 , 636 r 588 v (ne e put into

( asse i t n ) cludes t s l iabilities

circulation t o t t h h e e ECB) P artici (net) p ating -38 -81 41 1 2017 , i , 367 n , 719 , 160 in 246 t e

r euro e s t 65 Management Report 66 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 sharing with the Eurosystem. The reduction recorded this year was essentially the result of the risk- from resulting those including losses), financial (namely losses any cover to it enable to and definedat own funds at a to themethodology level that allows for appropriate financial autonomy for Banco de according Portugal’s mission calculated Eurosystem level.TheGeneral riskprovisionamountisestablishedannually,withaview tosetting latter the risks, financial and results assess which term, medium the over statements financial the for exercises projection internal as atDecember.Thelevelofthisprovisionisassessedperiodically aspartofBancodePortugal’s The Generalriskprovisionwasreducedby€520millionin 2017,reachingatotalof€3,727million assumptions) andofpositivecurrenttaxadjustments(€30 million). Fund– Pension the table life the of revision the of to result the essentially million, €-150 (totalling plan Defined-benefit relating of 2017, losses financial and actuarial of earnings retained in of distribution the of impact €352 million in dividends to the the State by investing the net profit for 2016; (iii) and (iv) the recognition 2017; for profit net in million €656 of recognition the (ii) combined effect of (i) the €520 million decrease in December 2017 of the General risk provision; Excluding revaluationaccounts,thisaggregatedeclined€341millionfrom2016,duetothe portfolio securities(€136million). (€363 million),inpotentialgainsfromGold(€199million)andtrading was the decrease in potential exchange rate gains from assets denominated in foreign currency Contributing to the decline in revaluation accounts (of €698 million, totalling €10,329 million) positive Profitfortheyear(ChartII.1.14). duetothe largely million), €15,918 2017 (to in decreases intheRevaluation accounts item and in the General risk provision, partly offset by the million €1,039 by fell year) the for Profit and Banco de Portugal’s own funds (the items Revaluation accounts, General risk provision, Equity 1.1.7 Ownfunds of poolingmonetaryincome. impairment and is offset by a loss recognised in the Profit and Loss account, in the item net result total the of share key Portugal’s de Banco reflects provision the of level the Therefore, portfolio. constitute a shared risk at Eurosystem level, even though they are not in Banco de Portugal’s (to asumofaround€1.7million),forexpectedlossesfromsecuritiesincludedintheCSPP,which was taken due to theirnature, as decided bythe Governing Councilofthe ECB in December 2017 provision specific sheet, balance Portugal’s de Banco on significance relative low their Despite (Programa deAssistênciaEconómicaeFinanceiraaPortugal–PAEF). European Union(EU)undertheEconomicandFinancialAssistanceProgrammetoPortugal Agency (AgênciadeGestãodaTesourariaeDívidaPública–IGCP),relatetofundsfromthe government currentaccounts,managedbythePortugueseTreasuryandDebtManagement Portugal (€8,953millionand€362respectivelyasat31December2017).Thegeneral the generalgovernmentcurrentaccountsandautonomousfunds’depositsheldbyBancode the item Liabilities to other euro area entities denominated in euro, which essentially comprises The €3,355 million negative change in the Other liabilities aggregate mainly reflects the decline in 1.1.6 Otherliabilities Adjustments tocirculation,mentionedin1.1.4onBanknotescirculation. Regarding the Intra-Eurosystemclaimsitem,itincludedremuneratedpositionrelatingto

Chart II.14• the PSPP. of monetary policy securities, namely from non-shared risk in the governmental component of be negated almost completely over the medium term by the estimated increase in the volume October 2017,theriskreductionresultingfromaforementionedratingincreaseislikelyto euro area up to at least the end of 2018, as announced by the Governing Council of the ECB in the increase in the Portuguese Republic’s rating. However, with the extension of the APP in the portfolio offoreignreservesandeuroassets,thedeclineincurrencyexposure the of recomposition and decrease the losses, financial of recognition the namely exposure, risk financial in decrease a caused which nature, in exceptional some factors, various of combination 3 , 322 7 , 758 12, 2013 589 253 4 Total Own Total for Profit General risk , 831 Own funds| 1 , 256 the funds provision year 3

, 567 9 , 637 14, 2014 EUR millions 789 5 304 , 152 1 , 282 4 , 047 9 , 296 14, 2015 837 5 233 , 541 1 , 261 4 Own funds excluding revaluation excluding funds Own Equity Revaluation , 247 11, (capital 027 16, 2016 accounts 957 + reserves + retained + reserves + 441 5 , 931 1 , 244 3 accounts , 727 earnings) 10, 329 2017

656 5 15, , 589 9 18 1 , 206 67 Management Report 68 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Other netprofit/loss Banknote productioncosts Total administrativeexpenses Net resultofpoolingmonetaryincome Income fromequitysharesandparticipatinginterests Unrealised lossesonfinancialassetsandpositions Realised gains/lossesarisingfromfinancialoperations Interest margin Table II.1.2 The Profitfortheyear2017was€656million. The maincomponentsoftheProfitandLossAccountfrom2013to2017areshowninTable2. 1.2 Income tax–deferred Income tax–current Transfer from/toriskprovisions Depreciation andamortisationfortheyear Other administrativeexpenses Supplies andservicesfromthirdparties Staff costs Interest expense Interest income Excluding those related to extraordinary or exogenous factors of BancodePortugal Related toexogenousfactorsthemanagement Related toextraordinaryfactors Excluding thoserelatedtosupervision Related tosupervision Developments intheProfitandLossAccount Income beforeprovisionsandtaxes Net profitfortheyear Income beforetaxes

1,156 2013 (114) (130) (429) 253 358 488 102 (31) (75) 176 123 727 13 (5) 14 35 38 22 11 54 4 1 1 1 2014 (128) (245) (117) 304 433 678 (30) 172 115 218 649 766 13 (1) 14 34 42 91 23 (1) 25 4 1 2 6 2015 (480) 233 324 804 (17) (60) 179 (91) 120 432 622 653 (30) (3) 16 11 38 47 95 25 26 1 2 7 – 2016 (191) (200) 441 650 850 (77) 183 (18) 122 177 845 882 (36) (1) 15 13 39 48 96 26 71 33 1 3 5 1,010 1,097 2017 (260) (264) (272) 656 928 408 520 108 208 136 127 (88) (7) 23 15 40 12 56 28 33 1 1 4 Δ 2017-2016 (EUR millions) (442) (183) (441) 216 278 720 (81) 164 216 (51) (6) 19 12 25 14 56 8 2 1 1 7 8 2 0 – interest onthisportfoliorepresented around73%ofInterestincome. portfolio, but all these assets posted yields below the average of the year before. In 2017, the purposes isbynaturesubstantially higherthanmostotherinterest-bearingassets onthe securities component. The average yield on the portfolio of securities held for monetary policy government PSPP’s the of volume in growth sharp the specifically purposes, policy monetary for Contributing tothesharp increase in interest assets wasinterestontheportfolioofsecuritiesheld reached €1,010 million in 2017, representing growth of €164 million from 2016 (+19%) (Chart II.1.16). which margin, Interest the is account Loss and Profit Portugal’s de Banco of component main The Chart II.16• to itsmovements,asidentifiedbefore,andthematerialisationoflossesmentioned. The General risk provisionwas also reduced, following consideration of the various factors relevant offset bytheincreaseinitemsInterestmarginandNetresultofpoolingmonetaryincome. partly positions, and assets financial on losses Unrealised and operations financial from arising 2016. The main factors underlying this decrease were the negative items Realised gains/losses Income before provisions and taxes was €408 million, representing a €442 million decrease from Chart II.15• 1 114 - - 2013 2013 176 - 105 - 130 - 727 253 , 727 429 156 -5 11 Interest margin| Developments inthemainprofit/lossitems| Interest margin Interest Net result of pooling of monetary income Total administrative expenses positions and assets financial on losses Unrealised Interest expense Interest 2014 - 2014 129 - 172 - 245 - 304 649 766 649 30 - 218 117 -1 EUR millions 432 Interest income Interest 2015 2015 179 - 480 - 233 653 - 622 91 - 622 60 - 17 - 30 Net profit for the yer Realised gains/losses arising from financial operations Income tax provisions risk from/to Transfer EUR millions 2016 2016 209 - 183 - 200 - 845 882 - 441 177 845 - 77 77 - 36 71 Interest margin Interest 2017 1010 1 1 2017 271 - 208 - 264 - 260 - 656 - 520 , , 097 010 88 127 69 Management Report 70 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 revaluation differencesitems. while unrealisedgainscontinue toberecognisedinthebalancesheet respective the Eurosystem, unrealised losses are recognised as expenses for the period as at 31 December, of (€19 million and€11 million respectively).In accordancewiththeharmonised accounting rules price decreases in securities in the trading portfolio denominated in euro and foreign currency associated withportfolioassetsdenominatedinUSdollars (€210million),aswelllossesfrom amount theoverall positions, of €260 million recognised in 2017 was mainly related to unrealised foreign currency losses and assets financial on losses Unrealised item the Regarding should benotedthatthegainsrealisedfromtheseassets reached€110millionin2017. interest raterisksassociatedwiththetradingportfoliosdenominated ineuroandUSdollars.It interest ratefuturesalsorealisednetlosses(€-117million), whichresultedfromthehedgingof of securities in US dollars, which devalued 12% during 2017 (Chart II.1.18). Along with this effect, the whenreducing realised losses volume oftheportfoliodenominatedinforeigncurrency,essentiallycomprisinglossesonsales currency foreign from chiefly arose result negative This negative totalof€-264million,whichisa€441milliondecreaseon2016(Chart II.1.17). cumulative a reached 2017 in operations financial from arising gains/losses Realised item The Chart II.17•Netresultoffinancialoperationsandunrealisedlosses| best estimatetodate. accruing interestontheseoperations(set at -0.40%from16March2016),as it was deemed the 2018, their treatment was standardised across the Eurosystem, using the deposit facility rate for on TLTRO-II operations. As the interest rate applicable to these operations will only be known in as welltheincreaseininterestpayableonlendingtocreditinstitutions,particular The positive impact of these was partly offset by the general reduction in yields on the main assets, context ofnegativerates. Portugal (minimum reserve surplus), principally due to the increase in their average balance, in a increase in interest receivable from the current accounts of credit institutions with Banco de and fromgoldswapoperationsforforeigncurrency(ii)intheareaofmonetarypolicy, trading portfoliodenominatedinforeigncurrency,principallyasaresultofincomefromsecurities Furthermore, theInterestmarginitemfor2017wasdrivenby(i)increaseinintereston -5 2013 - 114 Realised gains/losses arising from financial operations 218 2014 -1 432 2015 - 60 Unrealised losses on financial assets and positions 177 2016 - 77 EUR millions - 264 2017 - 260

Losses Profits

the Eurosystem, remunerated at the deposit facilityrate(-0.4%).The reduction of Portugal’s net largely resultedfromthevery sharpincreaseinmonetarypolicydepositoperations the restof year before,inacontextofincreasing overallmonetaryincomesharedbytheEurosystem, which Banco dePortugal’sshareofnetcontributionsintheEurosystem havingdecreasedfromthe sharp increaseintheresultofmethodsharingmonetary income(€58million)arosefrom the result of the method of sharing monetary income for the year (totalling €129 million). The In 2017,animportantcomponentintheitemNetresult ofpoolingmonetaryincomewas Chart II.19• currency lossesonsaleoperationsinUSdollars. Portugal overthemediumterm,asmentionedabove,includingmaterialisationofforeign de Banco by faced sheet balance the on risks financial the in decrease the consideration into At theendofyear,Generalriskprovisionwasreducedby€520million(II.1.19),taking Chart II.18• | EUR millions 0 0 0 0 0 0 . . . 95 85 75 value . . . Accumulated 1 9 8 7 Dec. 3 ,

192 13 Dec. 12 Movements intheGeneralriskprovision| Evolution oftheUSD/EURexchangerate + 2013

130 Dec. 14 USD / EUR / USD + 2014

245 + 2015 Dec.

480 15 Average costofUSDstock

EUR millions + 2016

200 Dec. 0 0 . . 1 Dec. 9 8 16 - 2017 0

520 16 . 949 value Accumulated 3 , 727 Dec. 17 Dec. -12% 17 Dec. 0 . 834 71 17 Management Report 72 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Staff costs,onacomparablebasis Table II.1.3 €3 million(+2%). around increased item costs Staff the basis, 2016 like-for-like a On change. from this reflects million) costs (€14 staff in increase The 2016. in million €11 to costs compared these million, 2017 €10 In totalled 2016. to up case the was as Equity cametobe of instead which costs, Staff in recognised earlyretirements, of theawarding from resulting Plan, Defined-Benefit – Fund Pension the in liabilities increased reflects essentially 2017 in costs Staff in increase The In 2017Totaladministrativeexpensescameto€208million(ChartII.1.20). the Eurosystem,mentionedin1.1.6. for provision specific the of recording the included also item this 2017, In recorded. was banks below its adjusted capital key, due to which a receivable from other Eurosystem national central TLTRO IIwithnegativesharedinterest.BancodePortugal’sshareofthesecontributionsremains contributions is chiefly due to lower contributions in relation to the SMP and a greater volume of Staff costs Chart II.20• against aslightincreaseof+5insupervisoryareas). reduction in the number of Banco de Portugal staff (-34 employees in non-supervisory areas, as the was terms, average in annual in 2017, effects these Offsetting costs. staff in increase the to for 2017aspartofthecollectivelabouragreementbankingsector(ACT)alsocontributed area includedinthecalculationofthatassumption. Furthermore, the 0.75% salary updateagreed discount rateonliabilities,dictatedbythesharpfallinsovereigndebtinterestrateseuro of the the reduction reflects chiefly and Company), Management Funds Pension Portugal de assessment made by Sociedade Gestora dos Fundos de Pensões do Banco de Portugal (Banco actuarial the from results increase This 2016). in than more million (€2 Plan Defined-Benefit compulsory socialcharges,namelytheincreasedannualchargefromPensionFund– in increase the by explained mainly was costs staff in increase the effect, this Disregarding retirements Increase inPensionFundliabilities,onearly 2013 128 181 1 14 38 Administrative expenses| Total administrativeexpenses,onacomparablebasis Supplies and services from third parties year the for amortisation and Depreciation 2014 118 175 14 42 1 2013 128 123 EUR millions 5 2015 184 125 11 47 1 2014 118 115 3 2015 125 120 5 Staff costs, on a comparable basis comparable a on costs, Staff expenses administrative Other 2016 133 195 13 48 1 2016 133 122 11 2017 136 136 10 2017 208 136 15 56 Δ 2017-2016 1 EUR millions 14 -1 3

follows: as distributed was million, €656.48 of amount the to 2017, year the for profit net the Portugal, In accordancewiththeprovisionssetforthinArticle53 (2)oftheOrganicLawBancode Profit distibution Hélder Rosalino|LuísLaginhadeSousaAnaPaulaSerra Directors Elisa Ferreira|LuísMáximodosSantos Vice-Governors Carlos daSilvaCosta Governor BOARD OFDIRECTORS Lisbon, 13March2018 from itsmissionascentralbankwithintheEurosystem. resources efficiently and contain costs, in a context of additional functions and responsibilities resulting Board ofDirectorsBancodePortugalhaveintroducedmeasuresacrosstheorganisationtomanage and duetothereductioninrentpaidonbuildingsthatwerenolongerusedbyBancodePortugal.The relating toutilitiescontractsandformaintenancerepairsofBancodePortugalpremises, essentially savings, effective to due expenses in reductions by mitigated partly were increases These Portugal’s employees. logistics, securityandHRmanagement,aswellthereinforcementoftrainingplanforBancode innovation of Banco de Portugal’s information systems and technologies, the use of outsourcing for IT, higher in2017,(by€1million,+2%).Contributingtothisgrowthexpenseswasthestrategiclineof tothe management of Banco de Portugal, the Supplies and services from third parties item was slightly or exogenous areextraordinary that components expense of effects these Excluding increased around€1millionfrom2016. mainly relatetosoftwaredevelopmentandtechnologyexpenseswithinthescopeofEurosystem, Supplies andservicesfromthirdpartiesregardingfactorsexogenous to BancodePortugal, which Banco in2017,bydecisionoftheMinistryFinanceOctober2017. the factthatBanco de Portugalbegantobear in fullthesekindsofexpenses relating to thesaleofNovo and theresolutionmeasureonBancoEspíritoSanto,S.A.(€+7millionfrom2016),partlyresulting to extraordinary factors, including legal and financial advice expenses in the sale process of Novo Banco expenses) grew€8million from 2016.Contributingtothisincreasewasthegrowth in expensesrelated The itemSuppliesandservicesfromthirdparties(accountingforaround27%oftotaladministrative

of StateFinance. pursuant toDecisionNo304/18 –SEAFinof24April2018theDeputyMinisterand Secretary and, pursuanttosubparagraph(c), 10% tothelegalreserve 10% tootherreserves. 80% totheState,asdividends ...... €525,187,356.78 €65,648,419.60 €65,648,419.60 73 Management Report 74 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 11 Otherassets 10 Itemsinthecourseofsettlement 9 Intra-Eurosystemclaims 7 Securitiesofeuroarearesidentsdenominatedin 6 Otherclaimsoneuroareacreditinstitutions to monetarypolicyoperationsdenominatedineuro 5 Lendingtoeuroareacreditinstitutionsrelated 4 Claimsonnon-euroarearesidentsdenominated 3 Claimsoneuroarearesidentsdenominated 2 Claimsonnon-euroarearesidentsdenominated 1 Goldandgoldreceivables Table II.1• 2 FinancialStatements 11.6 Sundry 11.5 Accrualsandprepaidexpenses 11.4 Off-balance-sheetinstrumentsrevaluation 11.3 Otherfinancialassets 11.2 Tangiblefixedassetsandintangible 11.1 Coinsoftheeuroarea 9.5 Otherintra-Eurosystemclaims 9.4 Netclaimsrelatedtotheallocationofeuro 9.3 NetclaimsarisingfrombalancesofTARGETaccounts 9.2 Claimsequivalenttothetransferofforeign 9.1 ParticipatinginterestintheECB 7.2 Othersecurities 7.1 Securitiesheldformonetarypolicypurposes 5.2 Longer-termrefinancingoperations denominated ineuro 5.6 Creditsrelatedtomargincalls 5.5 Marginallendingfacility 5.4 Structuralreverseoperations 5.3 Fine-tuningreverseoperations 5.1 Mainrefinancingoperations 4.2 Claimsarisingfromthecreditfacilityunder in euro in foreigncurrency 4.1 Balanceswithbanks,securityinvestmentsandloans 2.2 Balanceswithbanksandsecurityinvestments, 2.1 ReceivablesfromtheIMF in foreigncurrency differences banknotes withintheEurosystem reserves totheECB Exchange RateMechanismII(ERMII) external loansandotherassets Balance sheetofBancodePortugal Total depreciationandamortisation Assets Total impairment Total assets

number Note Note 12/19 19 11 10 9 8 5 7 5 6 5 4 4 3 2 153,228,703 42,527,539 58,844,194 22,131,400 13,304,644 41,160,392 11,875,619 46,968,576 22,011,400 7,113,966 8,451,598 5,383,265 1,010,318 7,261,872 1,189,726 assets Gross 239,140 552,154 392,027 918,389 376,412 153,130 203,700 100,000 64,066 42,538 20,000 64,066 1,335 1 – – – – – Depreciation, Depreciation, amortisation amortisation 31 Dec.2017 impairment and and 260,290 263,872 263,872 260,290 3,581 3,581 152,964,831 42,527,539 58,844,194 22,131,400 13,304,644 41,160,392 11,875,619 46,968,576 22,011,400 6,850,094 8,451,598 5,383,265 1,010,318 7,261,872 1,189,726 Assets 239,140 552,154 918,389 388,446 116,121 153,130 203,700 100,000 Net 64,066 42,538 20,000 64,066 1,335 1 – – – – – 31 Dec.2016 137,717,390 38,945,315 45,418,446 22,372,120 10,373,902 13,502,843 37,636,454 13,164,773 32,253,673 21,033,120 Assets 6,306,584 4,995,158 1,010,318 1,339,000 9,098,179 1,275,723 Net 382,896 387,737 822,745 336,613 121,744 203,700 387,737 27,526 29,545 94,842 778 20 – – – – – – 15 Equity 14 Generalriskprovision 13 Revaluationaccounts 16 Profitfortheyear 12 Provisions 11 Otherliabilities 10 Intra-Eurosystemliabilities 9 CounterpartofspecialdrawingrightsallocatedbytheIMF 5 Liabilitiestoothereuroarearesidentsdenominatedin 3 Otherliabilitiestoeuroareacreditinstitutionsdenominatedin 8 Liabilitiestonon-euroarearesidentsdenominatedinforeigncurrency 7 Liabilitiestoeuroarearesidentsdenominatedinforeigncurrency 6 Liabilitiestonon-euroarearesidentsdenominatedineuro 2 Liabilitiestoeuroareacreditinstitutionsrelatedmonetary 1 Banknotesincirculation figures inEURthousands presents section this since rounding, to due presented figures the of sum the equal not may statements financial the in included Totals/sub-totals Note: 11.2 Accrualsandincomecollectedinadvance 11.1 Off-balance-sheetinstrumentsrevaluationdifferences 10.4 OthernetliabilitieswithintheEurosystem 10.3 Netliabilitiesrelatedtotheallocationofeurobanknotes 10.2 NetliabilitiesarisingfrombalancesofTARGETaccounts 10.1 LiabilitiesrelatedtotheissuanceofECBdebtcertificates 15.2 Reservesandretainedearnings 15.1 Capital 11.3 Sundry 8.1 Deposits,balancesandotherliabilities 8.2 LiabilitiesarisingfromthecreditfacilityunderERMII 5.1 Generalgovernment 5.2 Otherliabilities 2.5 Depositsrelatedtomargincalls 2.4 Fine-tuningreverseoperations 2.3 Fixed-termdeposits 2.2 Deposit facility 2.2 Depositfacility policy operationsdenominatedineuro 2.1 Current accounts of credit institutions for compliance with minimum 2.1 Currentaccountsofcreditinstitutionsforcompliancewithminimum Total liabilities,revaluationaccounts,generalriskprovisionandequity reserve requirements within theEurosystem general riskprovisionandequity Liabilities, revaluationaccounts, Head oftheAccountingDepartment José PedroSilvaFerreira

number Note 21 19 20 19 17 18 15 16 13 14 8 3 4 152,964,831 31 Dec.2017 81,246,236 10,328,833 26,674,764 13,864,548 81,246,162 13,859,548 1,206,375 3,726,622 4,221,095 9,369,829 1,205,375 4,221,095 8,952,911 656,484 704,558 957,772 142,548 562,010 416,918 1,706 6,009 1,000 5,000 74 – – – – – – – – – 137,717,390 31 Dec.2016 71,588,292 11,026,701 13,010,559 25,660,832 71,588,283 11,845,234 EUR thousands 1,243,563 4,246,622 1,027,936 3,397,681 5,648,523 1,242,563 3,397,681 1,165,325 5,498,141 440,590 425,678 369,441 150,000 56,237 1,000 413 383 9 – – – – – – – – – 75 Financial Statements 76 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Table II.2• figures inEURthousands. Note: Totals/sub-totals included in the financial statements may not equal the sum of the figures presented due to rounding, since this section presents 1 27 23 22 21 19 18 17 14 13 12 9 8 7 6 3 2 26.2 26.1 26 25 24 20 16 15 11 10 5 4 Interest income Profit fortheyear Income tax–deferred Income tax–current Income tax Income beforetaxes Totals costsandlosses(net) Transfer tothereserverelatingcapitalgainsongoldsales Losses forimpairmentofassets(losses/reversals) Other expenses Costs ofbanknoteproduction Total administrativeexpenses Depreciation andamortisationfortheyear Other administrativeexpenses Supplies andservicesfromthirdparties Staff costs Total netincome Other income Net resultofpoolingmonetaryincome Income fromequitysharesandparticipatinginterests Net incomefromfeesandcommissions Fees andcommissionsexpense Fees andcommissionsincome Net resultoffinancialoperations,unrealisedlossesandriskprovisions Transfer from/toriskprovisions Unrealised lossesonfinancialassetsandpositions Realised gains/lossesarisingfromfinancialoperations Net interestincome Interest expense Profit andlossaccount Items Head oftheAccountingDepartment José PedroSilvaFerreira 19/26 number Note 30 30 19 27 29 28 27 25 19 24 23 22 9 31 Dec.2017 1,169,276 1,009,750 1,097,343 (264,191) 656,484 927,721 241,555 207,989 271,964 271,237 135,721 126,886 520,000 260,333 (5,250) (4,525) 14,754 55,871 33,234 22,814 10,244 87,593 15,058 (4,002) 1,338 4,995 9,181 (727) – 31 Dec.2016 EUR thousands (100,663) (200,000) 440,590 649,506 201,012 183,402 850,518 845,298 881,792 190,977 208,916 121,980 176,757 (3,147) 17,939 47,524 32,930 70,903 77,421 14,884 36,494 12,630 1,269 5,027 2,731 5,198 8,174 (5) – 2017 (12)=(7)+(8)(11) Position asat31December for theyear(11)=(9)+(10) Comprehensive income Net profitfortheyear(10) Changes in2017 2016 profitdistribution 2016 (7) Position asat31December 2016 (6)=(1)+(2)(5) Position asat31December for theyear(5)=(3)+(4) Comprehensive income Net profitfortheyear(4) Changes in2016 2015 (1) Position asat31December Table II.3• figures inEURthousands. Note: Totals/sub-totals included in the financial statements may not equal the sum of the figures presented due to rounding, since this section presents 2015 profitdistribution Sub-total ofchangesin2016(3) Sub-total ofchangesin2017(9) Other operations Income tax–current of thePensionFund Actuarial gains/losses of deferredtaxes Adjustments onaccount to shareholders Dividends distribution Other operations Income tax–current in equity Other changesrecognised of deferredtaxes Adjustments onaccount of thePensionFund Actuarial gains/losses assets andintangible Revaluation oftangiblefixed policies Changes toaccounting to shareholders Dividends distribution Sub-total of2016profit Sub-total of2015profit Description distribution (8) distribution (2) Statement ofchangesinequity

number Note Note 21 30 30 32 21 21 30 30 32 21 Paid up capital Head oftheAccountingDepartment 1,000 1,000 1,000 1,000 – – – – – – José PedroSilvaFerreira reserves 395,959 351,900 351,900 328,611 Legal 44,059 44,059 23,289 23,289 – – – – 1,332,161 1,288,102 1,288,102 1,264,813 reserves Other 44,059 44,059 23,289 23,289 – – – – Distributable Distributable earnings retained 46,304 16,610 16,610 29,694 29,694 29,694 16,610 16,610 16,610 – – – – distributable distributable earnings retained (569,049) (414,049) (414,049) (333,421) (155,001) (155,001) (150,417) Non- (80,628) (80,628) (79,371) (4,584) (1,257) – – Net profit (440,590) (352,472) (232,892) (186,313) 232,892 for the 656,484 440,590 440,590 656,484 656,484 440,590 440,590 (88,118) (46,578) year EUR thousands – – 1,862,858 1,684,153 1,684,153 1,493,895 (125,307) (352,472) (352,472) (150,417) equity (186,313) (186,313) Total 531,177 656,484 376,572 440,590 (64,018) (79,371) 29,694 16,610 (4,584) (1,257) – – – – – 77 Financial Statements 78 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 guidance ontherecognitionandmeasurement based ontheIFRS the optional rules recommended in that Guideline for participating interests; and (ii) technical the treatment of core central banking activity, with Banco de Portugal having decided to also adopt on ECB the of Council Governing the by defined rules mandatory the of adoption the establishes ESCB’), the of ‘Statute the (hereinafter Bank Central European the of and Banks Central of System ECB Accounting Guideline”), major regulations: (i) the Accounting Guideline of the European Central Bank (ECB) (hereinafter “the two on rely force, in PCBP the in envisaged statements, financial the of preparation for bases The The PCBPisaregulationspecificallyandappropriatelydesignedforthecentralbankactivity. Article 63(1)oftheOrganicLawBancodePortugal,andentered intoforceon1January2012. member ofGovernment responsible forFinance, in accordancewiththeprovisionslaiddown Accounts ofBanco de Portugal(Plano de Contas do BancodePortugal–PCBP),approvedbythe The financial statements of Banco de Portugal have been prepared in accordance with the Chart of 1.1 ACCOUNTING POLICIES NOTE 1•BASESOFPRESENTATIONANDMAIN 3 NotesontheFinancialStatements 3. 2. down bytheECBasabasis.Astootherbusiness areas, the disclosuresareoninformation European System of Central Banks (ESCB), Banco de Portugal uses the harmonised procedures laid With regardtothe disclosures of positions relating to the participation inthe operation of the sense justifyingit,BancodePortugaldoesnotprepareconsoli dated financialstatements. immaterial natureoftheresultsapossibleconsolidation process,aswellthelackofeconomic measured incompliancewiththeaccountingpolicydescribed inSection1.2(e)ofthisNote.Giventhe their maintenance is connectedwithBanco de Portugal’sactivity. These participating interestsare Participating interestsinsubsidiariesandassociatedcompanies havealong-standingnatureand those relatingtoeuroarearesidents. be made according to the residence in the euro area criterion. Euro area assets and liabilities are shall liabilities and assets of classification the Guideline, Accounting ECB the with accordance In are recordedinthebalancesheetbetweenLiabilitiesandEquity. and reductions are directly made against Profit/loss (Section 1.2 (q) of this Note). These two items risk provision,whichunliketheotherprovisions,isequivalent to areserve, although its increases gains that are not recognised in Profit/loss (Section 1.2 (d) and (p) of this Note); and (ii) the General The PCBP defined two single balance sheet items: (i) Revaluation accounts, representing potential will beappliedprovidedthecumulativeconditionslaiddowninPCBParemet. IFRS: InternationalFinancial ReportingStandards, asadoptedintheEuropeanUnion. of CentralBanks(ECB/2016/34)withitssubsequent amendments–availablefromwww.ecb.eu. System European the in reporting financial and accounting for framework legal the on 2016 November 3 of Bank Central European the of Guideline (Figures inEURthousands,saveasotherwisestated) Bases ofpresentation 2 which, taking into account Article 26.4 of the Statute of the European 3 fortheotheractivities, which ewe te rnato vle n te egtd vrg cs, r rcgie i te Profit the in recognised are cost, the difference average by weighted the and determined value operations, transaction the financial between from arising losses and gains Realised in anyonesecurity(ISINcode), orinanycurrency. ‘Unrealised losses on financial assets and positions’. There is no netting of revaluation differences thefiscal year, negative revaluation differences are recognised of in the Profit and Loss Account end under the At currency. and asset of type each for accounts revaluation specific in sheet, (i.e. between the market value and the weighted average cost) are recognised in the balance differencesrevaluation period, the of course the over Thus, Guideline. Accounting ECB the with Banco dePortugalappliesanasymmetricvaluationapproach tounrealisedgainsinaccordance straight-line basis(Section1.2(g)ofthisNote). difference the between thetwolegsbeingtreatedasinterestandrecordedoverlifeofswapona amount, same the by leg spot the of date settlement the on recognised is leg The spotlegofforeignexchangeswapsisrecognisedonthesettlementdate.forward currency foreign the position asfromthatdate. of cost average the on influence an having date, trade the on but date, Foreign exchange forward transactions are recognised in the balance sheet not on the settlement recognised inoff-balance-sheetaccountsonthetradedate. date. Whentheyearendsbetweensettlementdateandtradedate,transactionsare Assets andliabilitiesingeneralarerecognisedonthesettlementdateratherthantrade is theirsettlement and expected toresultinanoutflowoffundsorinvestmentresourcesrepresentingeconomicbenefit. pastevents from resulting commitments are Liabilities benefit. economic on a collective basis (pooling), resulting from past events and which are expected to generate future Assets areresourcescontrolledbyBancodePortugalonanindividualbasis,ortheEurosystem understandability, are statements relevance, reliabilityandcomparability. financial the of characteristics qualitative The continuity. it isgeneratedandnotaccordingtothemomentintimewhichpaidorreceived) to interestincomeandexpense,whichisrecognisedintheaccountingperiod regard with namely items, statement financial most to relation (in principle accounting of basis its assetsand of reality liabilities andarepreparedinaccordancewiththefollowingaccountingassumptions:accrual economic the reflect dePortugal of Banco statements financial The of BancodePortugalfortheyeararefollowing: The main accounting policies and valuation criteria used in the preparation of the financial statements 1.2 objective ofBancodePortugalasthecentralbank. market players; (ii) the purposes of the operations conducted byBanco de Portugal; and (iii) the defined by the IFRS, whenever it does not collide with (i) the day-to-day activity of the markets and d) Recognitionofgainsandlosses c) Recognitiondate b) Recognitionofassetsandliabilities a) Accounting assumptionsandqualitativecharacteristicsofthefinancialstatements Synopsis ofthemainaccountingpolicies 79 Notes on the Financial Statements 80 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 through theNetAssetValuevaluationmethod. assets, are valued in accordance with the recommendations of the ECB Accounting Guideline, Participating interests in subsidiaries and associated companies, recorded under Other financial stock being only changed when the amount purchased on a given day is higher than the amount sold. The accountingtreatmentofgoldandforeigncurrenciesissimilar,withtheaveragecost holdings underlyingtheSDRbasketaretreatedjointlywithSDRs,formingasingleholding. Special DrawingRights(SDRs)aretreatedasacurrencyforaccountingpurposes.Currency security-by-security basis(ISINcode). between spot and forward currency positions. Securities price revaluation is also made on a Foreign currencyrevaluationismadeonacurrency-by-currencybasisandnodistinction impairment losses(Section1.2(f)ofthisNote). regarding theprogrammescurrentlyimplementedaremeasuredatamortisedcostlesspotential purposes policy monetary for held securities and held-to-maturity as classified securities The end oftheperiodatexchangeratesandmarketpriceprevailingonreportingdate. Gold, foreignexchangetransactionsandsecuritiesinthetradingportfolioarevaluedat expense’ ‘Interest or depending onwhetheritsvalueispositiveornegative. income’ ‘Interest under net presented is receivable or payable interest In accordancewiththeEurosystem’saccountingframework,eachbalancesheetsub-item’s financial operationsareimmediatelyrecognisedonthetradedate. in one year but settlement only occurs in the subsequent year, gains and losses arising from described intheECBAccountingGuideline.Inthesesituations,whereoperationsaretraded method, alternative approach’ ‘economic the in envisaged financial situations the in from except operations’, arising gains/losses ‘Realised under date settlement the on Account Loss and 4. which fallwithinthefiscallyacceptedintervalsunderRegulatoryDecreeNo25/2009: by applying annual depreciation and amortisation rates (according to the estimated useful life) Depreciation and amortisation are recorded in twelfths, according to the straight-line method, This acquisitioncostincludesexpendituredirectlyattributabletotheofgoods. depreciation and amortisation, in accordance with the rules laid down in IAS 16 and IAS 38 respectively. accumulated less cost acquisition the at measured are assets intangible and assets fixed Tangible recognised accordingtotheacquisitioncostcriterion,subjectpotentialimpairmentlosses. level ofthatparticipatinginterest. Net Asset Value (NAV) = total assets less total liabilities of entities in which Banco de Portugal has a participating interest, multiplied by the percentage Intangible assets Tangible fixedassets e) Measurementofbalancesheetitems Equipment Facilities Buildings andotherconstructions Furniture andfittings Transport equipment Computer hardware Machinery andtools 4 Theremainingparticipatinginterestsare Number ofyears 10 to50 4 to20 3 to6 4 to8 4 to8 3 to5 4 to8 CBPP3; (ii) the securities markets programme – SMP; (iii) the outright monetary transactions programme CBPP3; (ii)thesecuritiesmarkets programme–SMP;(iii)theoutrightmonetarytransactions monetary policyoperations,namely: (i)thecoveredbondpurchaseprogrammes–CBPP,CBPP2 and The itemSecuritiesheldformonetary policypurposesincludessecuritiesrelatedtonon-standard • held inthisportfolioissimilartothatofthemarketable securities. Eurosystem level.Theaccountingtreatmentofinterestand premiumsanddiscountsofsecurities tests according to the model defined by Banco de Portugal, which follows the guidelines defined at independently of the other securities classified as trading securities, and is subject to impairment The portfolioofheld-to-maturitysecuritiesismeasured atamortisedcost,calculatedtotally and therespectivemarketvalue,arerecognisedasreferred toinSection1.2(d)ofthisNote. Revaluation differences correspond to the difference between the amortised cost of the security already incorporatesallthepurchasesmadeonthatday. Sales are deducted from the stock at the weighted average cost for the sale’s value date, which security fromthepreviousworkingday,sothatanewweightedaveragecostcanbecalculated. The acquisitioncostofthedailypurchasesisaddedtoweightedaverageeachtype sales andtheadjustedweightedaveragecostofsecurityistreatedasrealisedgain/loss. of value the between difference The discount. or premium the of amortisation accumulated the The costingmethodadoptedbyBancodePortugalusestheadjustedweightedaveragecostof portfolio isassessedusingindicativemarketquotes. The portfolio of marketable securities is measured at market price. The market value of this Securities forotherthanmonetarypolicypurposesareinthefollowingportfolios: • in thecaseofzerocouponsecurities. straight-line method,inthecaseofcouponsecurities,orinternalratereturn(IRR) income andareamortisedovertheremaininglifeofsecurities,eitheraccordingto Premiums ordiscountsarisingonsecuritiesarecalculatedandpresentedaspartofinterest securities (medium-term investment portfolio) and securitiesheld for monetary policy purposes. Banco de Portugal holds in its portfolio marketable securities (trading portfolio), held-to-maturity where applicable(Section1.2(o)ofthisNote). previously mentionedinthisitem,arerecognisedatnominalvalue,lessanyimpairmentlosses Banco de Portugal, as well as the remaining balance sheet positions denominated in euro not Accounts receivableandpayabledepositswiththirdpartiesheldby use, andwhentheiramortisation/depreciationstartsalso. for available be to start they when assets intangible and assets fixed tangible to transferred and Assets underconstructionarevaluedatthetotalexpensesalreadychargedtoBancodePortugal below thenetcarryingamount. is amount recoverable estimated the whenever Account Loss and Profit the in recognised loss asset maybeimpaired,theasset’srecoverableamountmustestimated,withanimpairment intangible an or asset fixed tangible a that indication any is there whenever 36, IAS to According Securities heldformonetarypolicypurposes – – Securities forotherthanmonetarypolicypurposes – – Medium-term investmentportfolio Trading portfolio f) Securities 81 Notes on the Financial Statements 82 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 are for the most part initiated by private entities and are initially settled in TARGET2 accounts, resultfromcross-borderpaymentsintheEUthataresettledeuro.Thesetransactions Intra-Eurosystem balances,recognisedunderClaims/liabilitiesarisingfrombalancesofTARGET the balancesheetinAssetsunderParticipatinginterestECB. weightings referredtoinArticle29.BancodePortugal’ssharethecapitalofECBisrecorded relating tothetransferofforeignreserveassetsasenvisagedinArticle30resultfromapplying in Article 29. Thus, Banco de Portugal’s share in the capital of the ECB and claims allocated by the ECB the capital of the ECB (Article 28). The subscription of capital is made according to the key established Pursuant to the Statute of the ESCB, the NCBs of the ESCB are the sole subscribers to and holders of (the differencebetweenthespotandforwardprices)isaccruedovertransaction’slife. swap forforeigncurrency(oreuro)istreatedasthetakingoffunds,inwhichinterestagreed A gold levels. reserve gold affect not do operations these to relating flows gold and agreements In accordancewiththeEurosystem’saccountingframework,goldswapsaretreatedasrepurchase resulting fromthechangeinrespectivemarginaccount. is recognised in ‘Realised gains/losses arising from financial operations’, in line with the cash flows Section 1.2(d)ofthisNote.Inthecaseinterestratefutures,resultdailyrevaluation a case-by-casebasis.Astointerestrateswaps,therevaluationgain/lossistreatedasdescribedin Interest rate swaps and interest rate futures are recorded on the balance sheet and revalued on between theagreedcurrencyspotrateandforwardofexchange. difference the by determined is interest this swaps, exchange foreign of case the In transaction. the exchange rateisrecognisedasinterestandrecordedonastraight-linebasisduringthelifetimeof agreed the and date trade the of rate exchange market the between difference the transactions, forward exchange foreign of case the In accounts. off-balance-sheet and on-balance-sheet in Foreign exchangeforwardtransactionsandlegsofforeignswapsarerecognised (in termsofhowlongtheywillbeheldfor). subject to impairment tests conducted at Eurosystem level, regardless of the holding intention The securities currentlyheldformonetary policy purposesaremeasured at amortised cost, being (vi) the corporate sector purchase programme – CSPP, in which Banco de Portugal holds no securities. centralised onthebalancesheetofECB;(v)publicsectorpurchaseprogramme–PSPP;and – OMT,whichwasnotactivated;(iv)theasset-backedsecuritiespurchaseprogrammeABSPP,currently 5. banknotes within the Eurosystem (Section 1.2 (i) of this Note). banknotes withintheEurosystem (Section1.2(i)ofthisNote). single positionandarerecordedinthebalancesheetunder Claimsrelatedtotheallocationofeuro Intra-Eurosystem balancesarisingfromtheallocationof euro banknotesare included as a net Transfer offoreignreserveassetstotheECB. Portugal joinedtheEurosystemisdenominatedineuroand isrecordedinthebalancesheetunder The intra-Eurosystem balance arising from the transfer of reserve assets to the ECB when Banco de out byeachNCBonadailybasis,leavingwithsingle positionvis-à-vistheECBonly. bilateral balancesintheTARGETaccountsofEUcentralbanks. Thesebilateralbalancesarenetted Trans-European AutomatedReal-timeGross settlementExpressTransfer h) Intra-ESCBbalances g) Derivative financialinstruments 5 and give rise to and give rise to

allocated on the last working day of each month in accordance with the ‘banknote allocation key’. Lithuania adopted the euro on 1 January 2015. The total value of euro banknotes in circulation is 2011; thecentralbankofLatviaadoptedeuroon1January2014;and adopted theeuroon1January2009;centralbankofEstonia banks ofCyprusandMaltaadoptedtheeuroon1January2008;centralbankSlovakia 1 January2002;thecentralbankofSloveniaadoptedeuroon2007; banknotes in circulation. T 9. 8. 7. 6. intra-Eurosystem balances. into put circulation andbanknoteswithdrawnfrombythatNCBgivesrisetoremunerated banknotes NCBin accordance between each difference the to of value the and key allocation allocated banknote the eurobanknotes with of value the between difference The disclosed underthebalancesheetitemBanknotesincirculation. to theECB’scapital(adjustedkey).TheshareofeurobanknotesallocatedeachNCBis whereas the remaining 92% has been allocated to NCBs according to the key for subscription The ECB has been allocated a share of 8% of the total value of euro banknotes in circulation, seigniorage incometoaprovisionforforeignexchangerate, interest rate,creditandgoldpricerisks. handling ofeurobanknotes.TheGoverningCouncilmayalsodecidetotransferallorparttheECB’s to reducethisincomeinrespectofexpensesincurredbythe ECBinconnectionwiththeissueand mentioned securities purchase programmes or subject to any decision by the Governing Council year is expected to be lower than its income earned on euro banknotes in circulation and the above- form of an interim distribution of profit. of distribution interim an of form period it accrues and distributed on the last working day of January of the following financial year in the by theECBunderSMP,CBPP3,ABSPPandPSPPportfolios,shallbeduetoNCBsinsame the 8%shareofeurobanknotesallocatedtoECB,aswellincomefromsecuritiespurchased Governing Council of the ECB decided that the seigniorage income of the ECB, which arises from The and disclosedintheProfitLossAccountofNCBsunderitemNetinterestincome. The interestincomeandexpenseonthesebalancesisclearedthroughtheaccountofECB apply asofthefirstdaysixthyearaftercashchangeovereachnewEurosystemparticipant. under thebank’sbanknoteallocationtable.Theadjustmentsofintra-Eurosystembalanceswillceaseto reference the in period and the average value of banknotes that would have been allocated to them during that period NCB each of circulation in banknotes of value average the between differences the significantly alter NCBs’ relative income positions. These adjustments are effected by taking into account not do patterns circulation banknote in changes that so period five-year a over adjusted are circulation When aMemberStateadoptstheeuro,thoseintra-Eurosystembalancesreferringtoeurobanknotesin claims/liabilities relatedtotheallocationofeurobanknoteswithinEurosystem. he ECB and the NCBs of the euroarea,which together comprise theEurosystem, put euro (ECB/2014/57), OJJ53,25.2.2015,p.24. Decision oftheEuropean Central Bank of 15December2014 on theinterimdistributionofincomeEuropean Central Bank (recast) whose currencyistheeuro(recast),OJL347, 20/12/2016, p.26. Decision of theEuropean Central Bank of 3 November 2016 on the allocation of monetary income ofthenational central banks of Member States subscribed capitalkeytotheNCBs’shareinthattotal. ‘Banknote allocationkey’meansthepercentagesthatresultfromtakingintoaccountECB’s share inthetotaleurobanknoteissueandapplying the Decision oftheEuropeanCentralBank13December 2010ontheissueofeurobanknotes(ECB/2010/29), OJL35,9.2.2011,p.26. i) Banknotesincirculation j) DistributionoftheECB’sincome 6 The ECB and 12 of these NCBs have issued euro banknotes since 8 Theseclaimsor liabilities are disclosed under the sub-items Net 9 It shall be distributed in full unless the ECB’s net profit for the the for profit net ECB’s the unless full in distributed be shall It 7

83 Notes on the Financial Statements 84 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 equity sharesandparticipatinginterest. from Income item the under Account Loss and Profit the in recorded is The amount distributed periods, arising from temporary differences between the accounting values of assets and liabilities and and liabilities and assets of values accounting the between differences temporary from arising periods, Deferred taxassetsandliabilities correspondtothevalueoftaxberecoveredandpaid infuture CIRC) andthetaxincentives benefitsapplicabletoBancodePortugal. in the Corporate Income Tax Code (Código do Imposto sobre o Rendimento das Pessoas Coletivas Charges fortheyearfromincometaxarecalculatedinaccordance withtheprovisionslaiddown in theconditionsofbenefits. service cost,interestcostandnetactuarialgains/losses, arising fromchanges in assumptions or On an annual basis, Banco de Portugal recognises directly under Profit/loss for the year the current these benefits arepresentedinNote32. of value present the of calculation the in used demographic) and (financial assumptions actuarial main The Method. Credit Unit Projected the using accounts, the for date cut-off the on basis, annual an on bonuses seniority with benefits of value current the calculates SGFPBP The liabilities foryearsofservice,regardingsenioritybonuses. Banco de Portugal recognises on the liabilities side of its balance sheet the present value of contribution. additional any pay to obligation constructive or legal no has Bank the plan, defined-contribution Portugal contributes with 1.5% of the actual monthly compensation. However, since this is a Nonetheless, theseemployeesmayoptforasupplementarypensionplan,whichBancode Decree-Law No54/2009of2 March 2009,arecoveredbythegeneralsocialsecurityscheme. The employees who have started working at the Bank after 3 March 2009, pursuant to employees and95%forpastserviceliabilitiesofactivemembers. minimum fundingratiorequiredis100%forcurrentliabilitiestowardspensionersandretired As regardsthesePlans,contributionsmadefortheFundaimtoensurePlans’solvency.The the HealthcarePlan,describedindetailNote32. and Plan Pension the i.e. plans, benefit two comprises plan Defined-benefit – Fund Pension The financial assumptions.ThesegainsandlosseswillbedirectlyrecognisedunderRetainedearnings. and actuarial the in changes (ii) and values actual and used assumptions financial and actuarial the the Fund’sassetsandliabilities.Actuarialgainslossesresultchieflyfrom(i)differencesbetween current service cost and to net interest cost, which is calculated by applying a single interest rate to the to refers costs staff in recorded amount the therein, down laid provisions the to According 19. The recognitionofcostsandliabilitiesrelatedtoretirementpensionsismadeinaccordancewithIAS (financial and demographic) used in the calculation of these liabilities are also presented in Note 32. de Portugal– SGFPBP, usingthe Projected Unit Credit Method. The main actuarial assumptions basis, on the cut-off date for the accounts, by Sociedade Gestora dos Fundos de Pensões do Banco The Bank’sliabilitiesrelatedtothePensionFund,detailedinNote32,arecalculatedonanannual k) n) Incometax m) l) PensionFundofBancodePortugal–Defined-contributionplan Pension FundofBancodePortugal–Defined-benefitplan Seniority bonuses – are relatedtoitemsdirectlyrecognisedinequity,whichcasetheyalsorecordedagainstequity. of the amount of tax to recover and pay in the future and are recognised in Profit/loss, except when they their tax base. In compliancewithIAS 12, deferred taxesare calculated takingasabasisthebest estimate the GoverningCouncilof ECBwithanimpactonBancodePortugal’saccounts. levels allowingthecoverageof potentiallosses,includingthoseresultingfromdecisions takenby held at is ratio capital the that and Portugal, de Banco by on taken liabilities the for sufficient are assessment of balance sheet risks from a medium-term perspective, ensuring that own funds The General risk provision amount is defined taking into consideration, among other factors, the between LiabilitiesandEquity(Section1.1ofthisNote). The Generalriskprovisionisconsideredasaseparate item onthebalancesheet,recorded only increasedwhentheresultscreatedpreviouslyallow it. is provision risk General the reserve, a to similarity its Given Account. Loss and Profit the against provisions, asitissimilartoareserve,althoughitsincreases anddecreasesaredirectlymade The certain typesofassetsoroperationsareparticularlyliable. may establishotherreservesandprovisionsnamelytomeetdepreciationrisksorlosseswhich In accordancewithArticle5(2)oftheOrganicLawBancodePortugal,BoardDirectors losses, contributingtothecalculationofnetprofit/lossfortheyear. differences are negative they are transferred to the Profit and Loss Account in the item Unrealised At theendofyear,inaccordancewithprincipleprudence,whenrevaluation basis inthebalancesheetbetweenLiabilitiesandEquity. item-by-item an on presented are year the of end the at differences revaluation Positive gains. differences are positive, they are retained in these the When balance Note. this sheet of in (d) order 1.2 not Section to in distribute described unrealised as calculated are differences Revaluation Banco dePortugalfollowstheregimedefinedinCorporateIncomeTaxCode. the ECB.Theseprovisionsaredeductiblefortaxpurposes.Forotherorimpairment, euro areaNCBs,accordingtodecisionsandwithinthelimitssetbyGoverningCouncilof The PCBP also provides for the setting up of provisions resulting from risk shared with all other preparation ofthefinancialstatements. recognised inliabilitiesthroughthebestestimateofpaymentamount,asatdate reliable estimate can be made of the value of that payment obligation. These provisions are present, legalorconstructiveobligation,(ii)theirpaymentislikelytoberequiredand(iii)a In accordancewithIAS37,provisionsarerecognisedwhen:(i)BancodePortugalhasa estimate offuturecashflows. the bestestimateoflossesassociatedwitheachassetclassandtakesasareference value ofthoseassets,inaccordancewithIAS36.Thethisimpairmentresultsfrom Impairment ofassetsisrecognisedonthebalancesheetandshallbedeductedfrombook PCBP provides for the setting up of a General risk provision, which is different from the other o) q) p) Impairment andprovisions General riskprovision Revaluation accounts 85 Notes on the Financial Statements 86 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 1.5 taxes (Note30)andliabilitiesrelatedtoretirementpensions andotherbenefits(Note32). relate to the following: asset impairments and risk provisions (Note 19), current and deferred statements financial the of preparation the for assumed uncertainties and estimates main The the Eurosystemarealsotakenintoconsiderationinprepara tion ofthefinancialstatements. way astheyfollowacommonEurosystem-widepolicy,theestimates madefortheseoperationsby Regarding monetarypolicyoperations,whicharemadeby BancodePortugalinadecentralised time ofclosingtheaccounts. provision levelsrecorded.Theseestimatesarebasedonthebestinformationavailableat quantifying certainassets,liabilities,incomeitems,expenses,contingenciesand,inparticular, The annual accounts were prepared taking into consideration Banco de Portugal’s estimates in preparation ofBancodePortugal’sfinancialstatements 1.4 to anyadjustmentaredisclosedinthisappendixtheaccounts. date. Events indicative of a condition that arose after the balance sheet date which did not give rise statements’ approvaldate,wherethereisevidencethattheseeventsexistedatthebalancesheet for favourable or unfavourable events which occur between the balance sheet date and the financial In compliance with IAS 10, the assets, liabilities and profit and loss of Banco de Portugal are adjusted 1.3 Boardof by the distribution pending years Directors, or profit/loss not previous recognised in the Profit and Loss of Account as set out in the profit/loss accounting rules. represent earnings Retained and LossAccountcontributetothecalculationofnetprofit/lossforyear. with no maximum limit. Annual appropriations to increase this reserve are recognised in the Profit Law ofBancodePortugalisannually endowed withtheexactamount of gains on these operations, The special reserve relating to gains on gold sales, provided for in Article 53 (1) (b) of the Organic on goldsales;and(iii)otherreserves. of Banco de Portugal, being divided as follows: (i) legal reserve; (ii) special reserve relating to gains B that allowtheaforementionedriskstobecoveredoveramedium-termtimehorizon. risks – following methodologies common to the Eurosystem Central Banks – and financial buffers sheet balance statements, financial the in developments of assessment technical in-depth an on accordance withArticle5(2)oftheOrganicLawBancodePortugal,based,amongotherthings, Movements in the General risk provision are decided upon by the Board of Directors, in a dee nt o rvd adtoa ifrain f motne o raes f h financial the of readers for statements. importance of information additional provide to not deemed was flows cash of statement the of publication bank, central a as Portugal de Banco of role the Given anco dePortugal’sreservesaresetupandusedaccordingtotheprovisionsofOrganicLaw r)

Reserves andretainedearnings Other subjects Main estimatesanduncertaintiesinthe Post-balance-sheet events The locationofgoldreservesinvestedindepositsisasfollows: and (p)ofNote1. (e) 1.2 Section in described policy accounting the to according differences revaluation positive €10,472,463 thousandon31December2016)arerecognisedthebalancesheet(Note20)as Unrealised gainsresultingfromthisasset(€10,273,653thousandon31December2017and the goldreservelevel,asdescribedinSection1.2(g)ofNote1onaccountingpolicy. There were also gold swap transactions for foreign currency in 2017, although these do not affect 31 December2016. €1,081.88 per fine ounce of gold, which corresponds to a 1.5% price decrease, from €1,098.05 on Banco dePortugal’sgoldreservewasvaluedon31December2017atthemarketpriceof transactions. euro. The variation in the gold reserve level arises from small changes in the execution of gold in denominated gold of price falling the to due chiefly was decrease This balance. end 2016 the As at 31 December 2017 the value of gold decreased by €198,199 thousand compared with (a) Ounceoffinegold. NOTE 2• Eurosystem bestpracticetothisend. the purposeofensuringindependenceexternalauditors,BancodePortugalfollows central banks(NCBs)oftheEurosystemshallbeauditedbyindependentexternalauditors.For Article 27 (1) of the Statute of the ESCB, according to which the annual accounts of the national Banco de Portugal, as an integral part of the ESCB, is subject to the provisions laid down in Federal ReserveBank–UnitedStates Bank forInternationalSettlements(BIS) Bank ofEngland Gold storedattheBank Gold allocatedtoswaps Gold sightaccounts Location GOLD ANDRECEIVABLES Gold reserve Total 12,297,697 4,032,003 2,716,456 5,549,238 ounces Fine 2,716,456 (a) 1,957,472 31 Dec.2017 ounces 118,327 640,658 Fine 31 Dec.2017 13,304,644 thousands 4,362,147 2,938,882 6,003,615 EUR thousands 2,938,882 2,117,751 128,015 693,115 EUR 12,297,156 3,136,000 3,611,918 5,549,238 ounces Fine 3,611,918 2,852,934 ounces 118,327 640,658 Fine (a) 31 Dec.2016 31 Dec.2016 13,502,843 thousands 3,443,472 3,966,053 6,093,319 thousands 3,966,053 3,132,653 EUR 129,928 703,472 EUR

87 Notes on the Financial Statements 88 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Liabilities tonon-euroarearesidentsdenominatedinforeigncurrency Claims oneuroarearesidentsdenominatedinforeigncurrency INTERNATIONAL MONETARY FUND (IMF) INTERNATIONAL MONETARYFUND(IMF) NOTE 3•LENDINGANDDEPOSITOPERATIONSWITHTHE IN FOREIGNCURRENCY INVESTMENTS, LOANSANDOTHERASSETSDENOMINATED NOTE 4• against SDR(7.33%),from1.2746on31December2016to1.18762017. appreciation euro the of effect the include also items liability and claim different the in changes The 31 December2017. by theIMF,whichshoweda€957,772thousand(SDR806,477thousand)liabilitytoIMFon The liabilitypositioncorrespondstotheitemCounterpartofspecialdrawingrightsallocated changes intheSDRquotationcomparedwithDecember2016. remained unchanged and the change in its value denominated in euro resulted exclusively from payments, lesstheIMF’sholdingswithBancodePortugal.In2017Portugal’squotainIMF of Portugal’squotaintheIMF,correspondingtoinitialparticipationandsubsequent 2017, December 31 on euro, in equivalent the reflects IMF the in position tranche Reserve The a foreigncurrency,asdescribedinSection1.2(e)ofNote1. The positionsintheIMFaredenominatedSpecialDrawingRights(SDRs),whichtreatedas Claims onnon-euroarearesidentsdenominatedinforeigncurrency IMF quota IMF’s holdings SDR holdings allocated bytheIMF Counterpart ofspecialdrawingrights Total securityinvestmentsdenominatedinforeigncurrency Deposits, balancesandotherliabilities Balances withbanks,depositsandothermoneymarkets Securities Balances withbanks,depositsandothermoneymarkets Securities Reserve tranchepositionintheIMF Total balanceswithbanks,deposits andothermoney Liabilities totheIMF BALANCES WITHBANKSANDSECURITY Claims ontheIMF markets inforeigncurrency(net) SDR thousands (1,594,428) 1,001,790 2,060,100 (806,477) (806,477) 536,117 465,672 31 Dec.2017 EUR thousands (1,893,542) 1,189,726 2,446,575 (957,772) (957,772) 636,693 553,032 31 Dec.2017 (4,221,095) 3,010,563 3,592,931 7,261,872 4,778,448 2,483,424 582,367 552,154 527,139 25,015 SDR thousands (1,594,602) 1,000,881 2,060,100 (806,477) (806,477) 535,384 465,498 31 Dec.2016 31 Dec.2016 (3,397,681) 6,083,395 5,640,363 9,098,179 3,802,765 5,295,414 EUR thousands 443,031 382,896 344,949 (1,027,936) (2,032,480) (1,027,936) 37,948 1,275,723 2,625,803 682,400 593,323

Claims oneuroarearesidentsdenominatedin in foreigncurrency Claims onnon-euroarearesidentsdenominatedineuro IN EURO INVESTMENTS, LOANSANDOTHERASSETSDENOMINATED NOTE 5•BALANCESWITHBANKSANDSECURITY foreign currencycorrespondedtoUSdollars). of US dollars (around 84% of total foreign currency) as had been thecasein2016(90%oftotal As at 31 December 2017 the portfolio denominated in foreign currency was mainly composed non-euro arearesidentsdenominatedinforeigncurrency,asdescribedSection1.2(g)ofNote1. residents denominatedineuro)andanaccompanyingincreaseofthesameamountLiabilitiesto the balanceswithbanks,depositsandothermoneymarketsitem(underClaimsonnon-euroarea Gold swapsforforeigncurrencywerealsoenteredintoin2017(Note2),resultinganincrease Securities ofnon-euroarearesidentsdenominated for 84%oftotalclaimsdenominatedinforeigncurrency(2016:93%),brokendownasfollows: area residents,valuedatmarketprices.On31December2017,thesecuritiesportfolioaccounted euro. Thefallresultedessentiallyfromthevolumedecreaseinportfolioofsecuritiesnon-euro arising fromBancodePortugal’sstrategicinvestmentoptions,inacontextofappreciationthe In 2017therewasadecreaseinthetradingportfolioofclaimsdenominatedforeigncurrency terms of composition by financial instrument and origin of issuer. In accordance with Banco de Banco with accordance In issuer. of origin and instrument financial by composition of terms deposits and other money markets) fell from December 2016, retaining the same structure in T in foreigncurrency Securities ofeuroarearesidentsdenominated he volume of the trading portfolio denominated in euro (securities and balances with banks, Balances with banks, deposits and other money markets Balances withbanks,depositsandothermoneymarkets Securities Securities Paragovernmental andsupranational Government debt Balances with banks, deposits and other money markets Balances withbanks,depositsandothermoneymarkets Securities Paragovernmental andsupranational Total balanceswithbanks,depositsandothermoney Total securityinvestmentsdenominatedineuro markets denominatedineuro

31 Dec.2017 31 Dec.2017 12,178,824 11,932,907 12,114,759 11,875,619 3,010,563 1,693,037 2,483,424 245,917 239,140 790,387 527,139 527,139 64,066 57,288 6,777 31 Dec.2016 31 Dec.2016 13,580,036 13,550,951 13,192,299 13,164,773 5,640,363 4,203,140 5,295,414 1,092,274 387,737 386,178 344,949 344,949 29,085 27,526 1,559 89 Notes on the Financial Statements 90 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 be between the rate on the main refinancing operations (MRO) and the rate on the deposit on rate the and (MRO) operations refinancing main the on rate the between be possibility ofrepaymentafter twoyears.TheapplicableinterestrateforTLTRO-IIoperations will a with maturity, four-year a have operations These II). TLTRO (denoted operations refinancing In 2016,theGoverningCouncil oftheECBintroducedanewseriesfourtargetedlonger-term allotment ofthetotalamountbid. with rate fixed at conducted were operations These months. 48 and three between of maturity with transactions reverse liquidity-providing are (LTROs) operations refinancing longer-term The policy stance. in achievingtheaimsofsteeringinterestrate,managingmarket liquidityandsignallingthemonetary the totalamounthaving fallen since 31 December 2016, these operations continuetoplay a key role placed by Banco de Portugal amounted to €100,000 thousand (2016: €1,339,000 thousand). Despite fixed rate tender procedures, set at 0% since 16 March 2016. On 31 December 2017 the total amount witha usually frequency andamaturityofoneweek.SinceOctober2008these operationshavebeenconductedas transactions reverse are liquidity-providing (MROs) operations refinancing main The on thebalancesheetofBancodePortugalasat31December2017isfollows: held €22,131,400thousand(2016:€22,372,120thousand).Thebreakdownoftheseoperations area credit to euro operations reached €764,310,316 thousand (2016: €595,874,145 thousand), of which Banco de Portugal refinancing the of value euro institutions relating to monetary policy operations denominated in euroatEurosystemlevel the 2017 December 31 On DENOMINATED INEURO RELATED TOMONETARYPOLICYOPERATIONS NOTE 6• Securities ofeuroarearesidentsdenominatedin Securities ofnon-euroarearesidentsdenominatedineuro follows: The securitiestradingportfoliodenominatedineuro,valuedatmarketprices,isbrokendownas largest shareinthisportfolio(98%oftotalclaims2017and97%2016). Portugal’s strategic decisions, the domestic securities component continues to account for the Main refinancingoperations Marginal lendingfacility Longer-term refinancingoperations Companies/financial institutions Paragovernmental andsupranational Government debt Companies/financial institutions Paragovernmental andsupranational LENDING TOEUROAREACREDITINSTITUTIONS 31 Dec.2017 31 Dec.2017 11,932,907 22,131,400 11,875,619 11,541,728 22,011,400 313,196 100,000 20,695 57,288 31,825 25,464 20,000 31 Dec.2016 31 Dec.2016 13,550,951 22,372,120 13,164,773 12,468,115 21,033,120 1,339,000 675,582 386,178 353,734 21,076 32,444 0 supranational components(Section1.2(f)ofNote1). CBPP3), 12. 11. 10. Securities heldformonetarypolicypurposes markets programme(SMP), public sector securities and covered bonds, acquired by Banco de Portugal under the securities On 31 December 2017, the portfolio of Securities held for monetary policy purposes contains PURPOSES NOTE 7• fromrisk-sharing, the collateral including assetsthatmaybeacceptedbyNCBsattheirowndiscretion. of part specific a excluded has ECB the of Council Governing The losses. respective the cover to sufficient not is provided collateral the of resolution the from operations will only materialise if both the counterparty fails and the recovery of funds received proportion totheprevailingECBcapitalkeyshares,ondatetheymaterialise.Lossesthese operations, if they materialise, may be shared in part or in full by all Eurosystem NCBs, in In accordance with Article 32.4 of the Statute of the ESCB, any risks from monetarypolicy All financing operations related to monetary policy are fully collateralised by eligible assets (Note 31). recourse tothisfacilitywasnil). balance oftheseoperationswas€20,000thousand(on31December2016,BancodePortugal’s the specified rate for these operations (0.25% since 16 March 2016). On 31 December 2017, the The Eurosystem also provides the marginal lending facility, corresponding to overnight loans at de Portugalreached€22,011,400thousand(2016:€21,033,120thousand). On 31December2017thecombinedLTRObalanceoutstandingofamountplacedbyBanco level, asthisisdeemedaprudentapproach,setat-0.40%since16March2016. used forcalculatingtheTLTRO-IIaccruedinterestyear,inaharmonisedwayatEurosystem 2018 and a reliable estimate is not possible at this juncture, the deposit facility rate has been 2018, exceedsitslendingbenchmark.Therefore,giventhattheactualratewillonlybeknownin January and allotment TLTRO-II each of date the between institution, each by achieved financing facility at the time of allotment. Within this interval, the rate will be lower the more the net eligible – Supranationalsecurities Public sectorpurchaseprogramme(PSPP) – Governmentsecurities Public sectorpurchaseprogramme(PSPP) Covered bondpurchaseprogramme3(CBPP3) Covered bondpurchaseprogramme2(CBPP2) Covered bondpurchaseprogramme(CBPP) Eurosystem’s securitiesmarketsprogramme(SMP) 121, 14.5.2015,p.20. Decision oftheECB of 4 March 2015 on the implementationofsecondary markets publicsectorassetpurchase programme (ECB/2015/10), OJ L Decision oftheECB15October2014onimplementation ofthethirdcoveredbondpurchaseprogramme(ECB/2014/40),OJL335,22.10.2014,p.22. of theECB3November2011onimplementation ofthesecondcoveredbondpurchaseprogramme(ECB/2011/17),OJL297,16.11.2011,p.70and Decision oftheECB2July2009onimplementation ofthecoveredbondpurchaseprogramme(ECB/2009/16),OJL175,4.7.2009,p.18andDecision Decision oftheECB14May2010establishing asecuritiesmarketsprogramme(ECB/2010/5), OJL124,20.5.2010,p.8. 11 andthepublicsectorpurchaseprogramme(PSPP), SECURITIES HELDFORMONETARYPOLICY 10 thecoveredbondpurchaseprogrammes(CBPP,CBPP2and

Amortised 46,968,576 15,075,738 25,847,533 3,407,710 2,479,596 cost 58,089 99,909 31 Dec.2017 49,271,414 14,968,216 27,938,738 3,446,652 2,740,591 Market value 109,119 68,098 12 initsgovernmentaland 32,253,673 21,356,768 Amortised 5,057,214 2,945,142 2,714,662 121,849 cost 58,037 31 Dec.2016 31,420,990 20,264,946 4,934,412 2,961,463 3,055,645 Market 134,329 value 70,195 91 Notes on the Financial Statements 92 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 the Governing Council sees a sustained adjustment in the path of inflation compatible with its with compatible inflation of path the in adjustment sustained a sees Council Governing the at a pace of €30 billion per month from January to September 2018, or beyond, if necessary, until Based ontheOctober2017decisionbyGoverningCouncil, thesepurchasesaretocontinue month onaverageuptoMarch2017and€60billionper fromApriltotheendofyear. The paceofnetpurchasessecuritiesundertheAPPby NCBsandtheECBwas€80billionper make anypurchasesunderthisprogramme. issued byeligiblecorporationsestablishedintheeuroarea. In2017BancodePortugaldidnot ABSPP, the PSPP and theCSPP.UnderCSPP,NCBs may purchaseeuro-denominated bonds programme (APP), which includes the third covered bond purchase programme (CBPP3), the In 2017,theEurosystemcontinuedtopurchasesecuritiesunderexpandedasset exclusively ispurchasingthesesecurities. primary andsecondarymarkets,toimprovecreditprovisiontheeuroareaeconomy.TheECB may purchaseseniorandguaranteedmezzaninetranchesofasset-backedsecuritiesinboth Under theasset-backedsecuritiespurchaseprogramme(ABSPP), The reductionintheseitems2017wasduetobondsthatmatured. programmes werefullyimplementedby30June2010(CBPP)and31October2012(CBPP2). credit institutionstomaintainorexpandlendingtheircustomers.Purchasesunderthese improving fundingconditionsforcreditinstitutionsandenterprisesaswellencouraging purchased coveredbondsofeuroarearesidentsdenominatedinwiththeobjective Under thecoveredbondpurchaseprogrammes(CBPPandCBPP2),ECBNCBs due tosecuritiesthatmatured. 2017 nopurchasesweremadeforthisportfolio.Thereductioninitem,2017,wassolely 6 September2012toterminatethisprogrammefornewpurchases.Therefore,in2016and of themonetarypolicytransmissionmechanism.TheGoverningCouncilECBdecidedon in certainsegmentsoftheeuroareadebtsecuritiesmarketsandrestoreproperfunctioning Under theSMP,ECBandNCBspurchasedsecuritiesinorder to correct themalfunctioning Securities heldformonetarypolicypurposes The followingtablepresentsthemovementsintheseprogrammesduringyear2017: 13. (SMP) Eurosystem’s securitiesmarketsprogramme Covered bondpurchaseprogramme(CBPP) (CBPP2) Covered bondpurchaseprogramme2 – Governmentsecurities Public sectorpurchaseprogramme(PSPP) (CBPP3) Covered bondpurchaseprogramme3 – Supranationalsecurities Public sectorpurchaseprogramme(PSPP) Decision of the ECB of 19 November 2014 on the implementation of the asset-backed securities purchase programme(ECB/2014/45). Decision oftheECB19November2014on the implementationofasset-backedsecurities

31 Dec.2016 32,253,673 21,356,768 2,714,662 2,945,142 5,057,214 121,849 58,037 16,193,245 10,093,153 Purchases 1,336,898 4,763,195 – – – 1,120,050 securities securities Maturing Maturing 259,000 839,050 22,000 – – – 13 theECBandNCBs and discounts premiums premiums (358,292) (272,430) Accrual of Accrual of (35,280) (74,629) 23,934 60 52

31 Dec.2017 46,968,576 15,075,738 25,847,533 2,479,596 3,407,710 99,909 58,089

was soldinJanuary2018,realisingtheloss. establish aprovisionforlossesonmonetarypolicyoperations (Note19).Thesecurityinquestion accordance withtheprincipleofprudence,Governing Councildeemeditappropriateto that there was evidence of impairment in one of the securities held by a Eurosystem NCB. In key shares.Asaresultoftheimpairmenttestsconducted ontheCSPPportfolio,itwasdecided CSPP aresharedinfullbetweentheEurosystemNCBs,proportion totheprevailingECBcapital Based onArticle32.4oftheStatutesESCB/ECB, losses fromsecuritiesheldunderthe programmes. were recordedinrespectoftheothersecuritiespurchased undertheCBPP,CBPP2andCBPP3 Banco dePortugaldoesnotholdsecuritiesfromthisissuer.Furthermore,noimpairmentlosses therefore no impairment losses were recorded at the year-end in respect of these securities. there was no evidence of changes to the estimated future cash flows on the securities held, and Governing Councilconsideredthat,basedontheinformationavailable31December2017, Santander andisexpectedtobefullymergedintoBancointhenearfuture.The transferred to Banco Santander, S. A.. Banco Popular Español is now operating as part of Banco Resolution Board(SRB).ThesharesandcapitalinstrumentsofBancoPopularEspañolwere relating tosecuritiesissuedbyBancoPopularEspañol,arisingfromitsresolutiontheSingle indicator impairment an identified Council Governing the portfolios, CBPP3 and CBPP2 CBPP, In thecontextofimpairmenttestconductedatend2017onsecuritiesin and asaresultallestimatedfuturecashflowsonthesesecuritiesareexpectedtobereceived. held bytheNCBs,GoverningCouncildecidedthatnoimpairmentindicatorwasobserved, With regardtotheimpairmenttestsconducted on the SMP and PSPPportfoliosof securities amounts asat31December2017andwereapprovedbytheGoverningCouncil. monetary policypurposes,onthebasisofinformationavailableandestimatedrecoverable the of theyearimpairmenttestswereconductedatEurosystemlevelonsecuritiesheldfor with associated risks financial the basis securities held under these programmes. As referred to in Section 1.2 (f) of Note 1, at the end regular a on assesses Council Governing The prevailing ECBcapitalkeyshares. if theyweretomaterialise,maybesharedinfullbytheEurosystemNCBs,proportion In accordancewithArticle32.4oftheStatuteESCB,lossesfrommonetarypolicyoperations, portfolio (2016:€51,069,303thousand). securities portfolio(2016:€139,638,955thousand),and€131,593,122thousandintheCSPP portfolio (2016:€1,002,725,278thousand),€203,931,996thousandinthePSPP–Supranational €186,965,412 thousand), €1,508,841,676 thousand in the PSPP – Governmental securities portfolio (2016:€6,222,063thousand),€220,954,586thousandintheCBPP3 in theCBPPportfolio(2016:€11,756,253thousand),€4,367,919thousandCBPP2 amounts to€82,490,038intheSMPportfolio(2016:€94,802,907thousand),€5,446,721thousand Within themonetarypolicyprogrammes,totalEurosystemNCBs’holdingofsecurities amortised costsubjecttoimpairmenttests(Section1.2(f)ofNote1). The securitiespurchasedunderthesenon-standardmonetarypolicyprogrammesarevaluedat from maturingsecuritiespurchasedundertheAPP. inflation aim. The net purchases will be made alongside reinvestments of the principal payments

93 Notes on the Financial Statements 94 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 due totheadjustmentofaccumulatedreserves,came€203,700thousand. 1 January2015,andthevalueofBancodePortugal’sshare,includingsupplementarypayments Banco dePortugal’sshareinthesubscribedcapitalofECBhasremainedat1.7434%since assigned totheNCBsshallbeadjustedeveryfiveyearsafterestablishmentofESCB. established in accordance with Article 29, specifically with paragraph 3, under which the weightings to andholdersofthecapitalECB.Thesubscriptionshallbeaccordingkey Pursuant to Article 28 of the Statute of the ESCB, the NCBs of the ESCB are the sole subscribers • 14. NOTE 8• Bank ofEngland Sveriges Riksbank Banca NaţionalăaRomâniei Narodowy BankPolski Magyar NemzetiBank Hrvatska narodnabanka Danmarks Nationalbank Česká národníbanka Българска народнабанка/BulgarianNationalBank Suomen Pankki–FinlandsBank Národná bankaSlovenska Banka Slovenije Banco dePortugal Oesterreichische Nationalbank De NederlandscheBank Central BankofMalta Banque centraleduLuxembourg Lietuvos bankas Latvijas Banka Central BankofCyprus Banca d’Italia Banque deFrance Banco deEspaña Bank ofGreece Central BankofIreland Eesti Pank Deutsche Bundesbank Nationale BankvanBelgië/BanquedeBelgique The capitalkeyisalsoadjustedasaresultofth e accessionofnewMemberStatestotheEU. Participating interestintheECB INTRA-EUROSYSTEM CLAIMSANDLIABILITIES NCB Non-euro areaNCBs Euro areaNCBs The Netherlands United Kingdom Czech Republic Luxembourg Country Denmark Lithuania Germany Romania Hungary Portugal Slovenia Bulgaria Belgium Slovakia Sweden Estonia Finland Greece Croatia Austria Ireland Poland Cyprus France Latvia Spain Malta Italy Key forsubscription of theECB’scapital From 1Jan.2015 100.0000% 29.6085% 70.3915% 13.6743% 12.3108% 14.1792% 17.9973% 2.2729% 2.6024% 5.1230% 1.3798% 0.6023% 1.4873% 1.6075% 0.8590% 1.2564% 0.7725% 0.3455% 1.7434% 1.9631% 4.0035% 0.0648% 0.2030% 0.4132% 0.2821% 0.1513% 8.8409% 2.0332% 1.1607% 0.1928% 2.4778% 14

the EurosystemforMROs. 2016: €71,588,283thousand).Thispositionisremunerated atthemarginalinterestrateusedby (Section 1.2 (h) of Note 1) showed a credit position of €81,246,162 thousand (on 31 December On 31 December 2017, Net liabilities arising from balances of TARGET accounts to the ECB (net) • income relatingtopreviousyears,settledon31January2018 (Note26). of €74thousand,referredtoEurosystemadjustmentsthe calculationmethodofthemonetary On 31 December 2017, the balance of the item Other intra-Eurosystem liabilities, to the amount on 31January2018,followingadecisionoftheGoverningCouncil(Note26). securities purchased by the ECB under the SMP, CBPP3, ABSPP andPSPP portfolios, also settled of €24,463 thousand in respect of the early distribution of 2017 ECBincome relating to the totalling €128,666thousand,settledon31January2018(Note26);and(ii)anamountreceivable of €153,130thousand,referredto:(i)thecalculationmethodmonetaryincome2017, On 31December2017thebalanceofitemOtherintra-Eurosystemclaims,toamount • interest rateusedbytheEurosystemforMROs. (Note 13).Theassetpositionoftheadjustmenttocirculationisremuneratedatmarginal circulation from withdrawn banknotes and circulation into put banknotes between difference Eurosystem (4%upfrom2016)andariseinBancodePortugal’sassetpositionrelatingtothe to €41,160,392 thousand) is due to the combination of a rise in overall circulation in the The increase in this asset position compared with 31 December 2016 (from €37,636,454 thousand allocation keyhasremainedat2.2785%. (Section 1.2(i)and(j)ofNote1).Since1January2015,BancodePortugal’sshareinthebanknote of BancodePortugal’sclaimsrelatedtotheallocationeurobanknoteswithinEurosystem The itemNetclaimsrelatedtotheallocationofeurobanknoteswithinEurosystemconsists • 31 December2017. at equivalent to the transfer of foreignreserves to the ECBremained at €1,010,318 thousand as As there were no changes to the ECB’s capital key in 2017, the position of Banco de Portugal in claims rate fortheEurosystem’sMROs,adjustedtoreflectazeroreturnongoldcomponent. prevailing onthetransferdateandareremunerateddailyatlatestavailablemarginalinterest participating NCBstotheECB.Theseclaimsweretranslatedintoeuroatexchangerate This itemrepresentsclaimsarisingfromthetransferofforeignreserveassetsEurosystem • Eurosystem, hasremainedat2.4767%since1January2015. B anco dePortugal’sshareoftheECB’scapital,subscribedandpaidupbyNCBs Net liabilitiesarisingfrombalancesofTARGETaccounts Other intra-Eurosystemclaims/liabilities Net claimsrelatedtotheallocationofeurobanknoteswithinEurosystem Claims equivalenttothetransferofforeignreservesECB

95 Notes on the Financial Statements 96 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Accumulated depreciationandamortisation construction Tangible fixedassetsandintangibleunder Intangible assets Accumulated depreciationandamortisation Intangible assets Tangible fixedassets In 2016and2017movementsinthisitemwereasfollows: Tangible fixedassets NOTE 9•TANGIBLEFIXEDASSETSANDINTANGIBLE Amortisation ofintangibleassets Depreciation oftangiblefixedassets Amortisation ofintangibleassets Other intangibleassets Computer software Depreciation oftangiblefixedassets Museum andartcollections Other intangibleassets Computer software Equipment Museum andartcollections Facilities Facilities Buildings andotherconstructions Buildings andotherconstructions Equipment Land Land Total grosstangiblefixedassetsandintangible Total nettangiblefixedassetsandintangible 31 Dec.2015 Net balance 120,131 102,918 13,354 13,346 19,406 56,245 3,859 3,857 9,178 9,202 8,888 2 8 Additions 19,905 7,699 7,699 4,678 4,678 7,528 6,119 1,269 104 35 1 – – 31 Dec.2017 (260,290) (207,999) 116,121 376,412 308,502 108,047 (52,292) Disposals 63,989 63,857 98,817 83,402 3,921 9,396 8,840 5,662 5,461 5,459 132 201 193 2 2 6 – – – – – Depreciation amortisation for theyear 12,630 4,419 4,417 8,211 3,571 1,625 3,015 and – 2 – – – – 31 Dec.2016 (246,877) (199,972) 121,744 368,621 302,007 107,923 (46,905) 60,518 60,509 93,450 82,467 6,096 9,280 8,888 31 Dec.2016 Net balance 121,744 102,035 9 13,613 13,606 11,558 54,655 17,655 6,096 6,096 8,888 9,280 7 – Tangible fixedassetsandintangibleunderconstruction Intangible assets and themedium-terminvestment portfolio. Portugal de Banco of interests participating records essentially assets financial Other item The NOTE 10• and equipmentfacilitiesinvariousbuildingsofBancodePortugal. on under construction, assets intangible equipment handling cash systems, IT the to related projects to due chiefly is 2017 and December 31 assets fixed tangible of level high the Finally, various systemssupportingtheareasofstatisticsandsupervision. software licensing and the go-live of IT systems, namely the Risk Datawarehouse (RDW), as well as The acquisitions in 2017 relating to intangible assets were essentially associated with server material andsystemsinfrastructure. The increaseinEquipmentwasmainlydrivenbyacquisitionsofcashhandlingequipment,IT Tangible fixedassets – Projects – Projects Fixed assetsunderconstruction Advances Other intangibleassets Computer software Museum andartcollections Equipment Facilities Medium-term investmentportfolio Other assets Participating interestineuroarearesidententities Participating interestinnon-euroarearesidententities Buildings andotherconstructions Land OTHER FINANCIALASSETS 31 Dec.2016 Net balance 121,744 102,035 13,613 13,606 11,558 17,655 54,655 6,096 6,096 9,280 8,888 7 – Additions 16,196 3,471 4,246 4,246 3,348 8,479 7,009 1,053 123 116 301 – – 31 Dec.2017 5,383,265 5,328,925 Disposals 32,488 21,650 6,761 6,422 6,422 339 176 202 115 48 1 – – – – – and amortisation Depreciation for theyear 15,058 5,387 5,384 9,671 5,110 2,932 1,629 3 – – – – – 31 Dec.2016 4,995,158 4,942,611 30,770 21,650 31 Dec.2017 Net balance 129 116,121 100,504 11,697 11,570 13,281 15,775 53,212 3,921 3,921 9,396 8,840 127 –

97 Notes on the Financial Statements 98 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Banco dePortugal’sparticipatinginterestsarebrokendownasfollows: Participating interestinnon-euroarearesidententities as follows: is instrument financial of type by portfolio this of breakdown The recorded. therefore was loss impairment no and flows, cash future estimated the to changes of found was evidence no and trading portfolio denominated in euro. As mentioned above, these assets are subject to impairment tests the from inflows of result a as essentially 2016, from thousand €386,315 of increase impairment losses. In December 2017, the medium-term investment portfolio showed an composed ofsecuritiesdenominatedineuroandisvaluedatamortisedcostlesspotential portfolio, given its characteristics, is included in Other financial assets. This portfolio is exclusively Within thescopeofBancodePortugal’sownfundmanagement,medium-term investment accordance withtheaccountingpolicydescribedinSection1.2(e)ofNote1. respective shares are residual (1.57%, 0.01% and 0.25%), being valued at acquisition cost, in This procedure was not applied to participating interests in BIS, SWIFT and EUROPAFI, as the close tothefinalvalues. reference to 31 December 2017 and 2016, which according to the entities gave values fairly financial statements from the entities in which it has a participating interest to value these interests with provisional used Portugal de Banco 27). (Note year the directly for are Profit/loss differences in recognised valuation the which in method, valuation Value Asset Net the of use the from chiefly result Valora and SGFPBP in interests participating the of value the in Changes The marketvalueofthisportfolioispresentedinNote33 forinformationpurposes. Medium-term investmentportfolio Participating interestineuroarearesidententities In theBankforInternationalSettlements(BIS) Paragovernmental andsupranational Government debt In Valora,S.A. In SGFPBP,S.A. In Swift In EUROPAFI % Share 100.00% 97.85% 1.57% 0.01% 0.25% 31 Dec.2017 31 Dec.2017 5,328,925 5,268,484 60,441 32,488 21,650 28,848 Value 3,290 349 1 % Share 100.00% 97.85% 1.57% 0.01% 31 Dec.2016 31 Dec.2016 4,942,611 4,841,697 – 100,914 30,770 21,650 27,524 Value 3,244 1 – Prepaid expenses and 2016. Note 30 presents a more detailed description of the amount of deferred tax assets in 2017 recorded againstadeductionintheassetsreferringtoLending toemployees(Note12). the interestrate interest rates, totalling €8,754 thousand (2016: €9,848 thousand). The equivalent to this value is at employees, toits lending Bank applicable according to Labour Agreements (ConvençõesColetivas de Trabalho)and market on receivable to interest related flows cash between difference the of value updated the includes item expenses prepaid Other The (€49,751 thousandin2017and€82,5262016). Key amongthevaluesinthisitemisinterestonsecuritiesheldformonetarypolicypurposes de Portugalonthematuritydateofrespectivecouponoruponsalesecurities. outstanding interest paid to the counterparty at acquisition and which will be received by Banco term investmentportfolio,andportfolioofsecuritiesheldformonetarypolicypurposes) interest on securities held in Banco de Portugal’s portfolios (i.e. trading portfolio, medium- The item Prepaid expenses relating to central bank operations chiefly consists of accrued coupon funds, remuneratedatnegativeinterestrates(2016:€1,616thousand). €609 thousand of deposits in Banco de Portugal from general government and the autonomous of currentaccountscreditinstitutionsinregardtotheexcessreservesportionand(v) €10,063 thousandofgoldswapsforforeigncurrency(2016:€4,115thousand),(iv)€719 (iii) and ofthemedium-terminvestmentportfoliodenominatedineuro(2016:€138,024thousand), of securities and other assets of trading portfolios denominated in euro and in foreign currency securities held for monetary policy purposes (2016: €513,210 thousand), (ii) €97,964 thousand include essentially outstanding accrued interest receivable as follows: (i) €693,082 thousand of On 31December2017accrualsrelatingtoIncomereceivablefromcentralbankoperations Accruals NOTE 11• Deferred taxassets Other prepaidexpenses Prepaid expensesfromcentralbankoperations Other accruals operations Interest andotherincomereceivablefromcentralbank ACCRUALS ANDPREPAIDEXPENSES 31 Dec.2017 918,389 113,398 804,991 803,883 38,465 11,772 63,162 1,108 31 Dec.2016 822,745 162,176 106,417 660,568 659,561 42,311 13,448 1,008

99 Notes on the Financial Statements 100 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 NOTE 12• 2017, valuedatmarketprice, onthatdate(Note32). the valueofparticipation units ofthisFundearmarkedforBancodePortugalon31 December The position concerning the Pension Fund – Defined-contribution plan – Reserve account reflects (Note 32). 2017, resultingfromthefactthatthisFundondate hadafundingratioabove100% December 31 on surplus Fund’s this to relates plan Defined-benefit – Fund Pension item The comply withtheprovisionsofArticles104and104-A CorporateIncomeTaxCode. The amounts paid as payments on account, in 2016 and in 2017, under Corporate Income Tax for reasonsofprudence(Notes19and30). remaining onthebalancesheetcontinuetohaveacorresponding impairmentattheirfullvalue, and theproratadistributionofcredittorespective creditors.Therecoverableamounts credit by Banco dePortugalas part of the closureofwinding-up ofCaixaEconómicaAçoreana aforementioned annextotheinitialcontract.Thechangein2017relatespartialpaymentof was subtractedin2016 from theoverall value oftheBP/FinangesteArrangementunder is theresponsibilityofjudicialliquidatordesignatedbyBancodePortugalitself.Thiscredit The item Claims related to reorganisation of credit institutions includes credit whose recovery that year. this Arrangementthepreviousyearledtoadelayincalculationofannualinstalment 2016 and 2017, within the aforementioned Arrangement, as the aforementioned renewal of entity anddeliveredtoBancodePortugalthroughthecalculationofannualinstalments and 30). The decrease in 2017wasrelatedtothenominal amount ofcreditrecoveredbythis (2016: €1,238thousand).Animpairmentforthetotalvalueofthisassetisrecognised(Notes19 added in2016,representinganasseton31December2017totheamountof€948thousand amounts undertheBP/FinangesteArrangementof9January1995,towhichanannexwas The value recorded under Special credit situations – BP/Finangeste Arrangement relates to Lending toemployeescorrespondsmostlymortgageloansemployees. Impairment ofrecoverableamounts payment onaccount Corporate IncomeTax–Paymentsonaccountandadditional Sundry debtors Other reducedvalueaccounts Billing tothirdparties Pension Fund–Defined-contributionplanReserveaccount Pension Fund–Defined-benefitplan Claims relatedtoreorganisationofcreditinstitutions Other specialcreditsituations Special creditsituations–BP/FinangesteAgreement Lending toemployees OTHER ASSETS–SUNDRY 31 Dec.2017 388,446 392,027 155,794 158,949 23,806 40,977 (3,581) 1,419 6,736 2,211 778 409 948 31 Dec.2016 336,613 344,197 152,861 23,503 15,754 80,993 56,998 (7,583) 5,997 5,899 1,238 514 439

€150,000 thousand). (2016: operations these for rates pre-specified the at Eurosystem the of operations absorbing domestic creditinstitutions with BancodePortugal,usedasameanstoaccessthe liquidity- outstanding on this date (€5,000 thousand), corresponding to the overnight deposits of As atDecember2017,thisitemalsoincludesthebalance ondepositfacilityoperations excess reserves(ECB/2014/23). Decision oftheECB5June2014onremuneration ofdeposits,balancesandholdings The amountinminimumreservesisremuneratedaccordance withArticles1and2ofthe requirements. deposited forcompliancewithminimumreserve serve a two-fold purpose: they are current/settlement accounts and accounts where funds are against 2016: €5,498,141 thousand). Current accounts of credit institutions with Banco de Portugal as to thecurrentaccountsofcreditinstitutionswithBancodePortugal (2017:€13,859,548thousand policy operations denominated in euro, amounting to €13,864,548 thousand, relates almost exclusively As at31December2017,theitemLiabilitiestoeuroareacreditinstitutionsrelatedmonetary DENOMINATED INEURO INSTITUTIONS –MONETARYPOLICYOPERATIONS NOTE 14• Other intra-Eurosystemclaims(Note8). adjustment tocirculationintheEurosystem,whichisrecognisedagainstanassetrecorded the in increase the for account combined effects two These 2016. from rising balance, debtor circulation and banknotes withdrawn from circulation recorded again on 31 December 2017 a into put banknotes between difference The 2016. December 31 on thousand €25,660,832 with recorded an aggregate value of banknotes in circulation of €26,674,764 thousand, compared In accordancewiththebanknoteallocationkey,on31December2017BancodePortugal In 2017 the total value of euro banknotes in circulation in the Eurosystem increased by 4%. Banknotes incirculation euro banknotesincirculationtheEurosystem(Section1.2(i)ofNote1). Euro banknotesincirculationon31December2017consistofBancodePortugal’ssharetotal NOTE 13• these expenseswereborneinfullbyBancodePortugal(Note27). Santo, S.A..In2017,inaccordancewiththeOctober2017decisionofMinistryFinance, advice relating to the sale process of Novo Banco, S. A., following the resolution of Banco Espírito date were deemed chargeable to the Resolution Fund under the contracts for legal and financial As at31December2016,theitemBillingtothirdpartiesessentiallyrelatedcoststhaton Adjustments tocirculationintheEurosystem Banknotes putintocirculation(net) LIABILITIES TOEUROAREACREDIT BANKNOTES INCIRCULATION 31 Dec.2017 (14,485,627) 26,674,764 41,160,392 31 Dec.2016 (11,975,623) 25,660,832 37,636,454

101 Notes on the Financial Statements 102 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 the new series of targeted longer-term refinancing operations (TLTRO II). For prudence, the For prudence, II). (TLTRO operations refinancing longer-term targeted of series new the payable onlendingtocredit institutions (€116,107thousand), whichrelates to operations under The amountrecordedinAccruals fromcentralbankoperationsincludestheaccrued interest Liabilities toothereuroarearesidentsdenominatedin Accruals Income collectedinadvance NOTE 17•ACCRUALSANDINCOMECOLLECTEDINADVANCE several centralbanksandofinternationalorganisations(excludingtheIMF). 31 December 2017 and 31 December 2016corresponds to the balances of current accounts of The balanceontheitemLiabilitiestonon-euroarearesidentsdenominatedineuro DENOMINATED INEURO NOTE 16• from theMutualAgriculturalCreditGuaranteeFundandDepositFund. The currentaccountsofautonomousfundsin2017relatetobalancesheldatBancodePortugal, of deposits,balancesandholdingsexcessreserves(ECB/2014/23). balances issubjecttoArticle4(3)oftheDecisionECB5June2014onremuneration (Programa deAssistênciaEconómicaeFinanceiraaPortugal–PAEF).Theremunerationofthese the European Union (EU) under the Economic and Financial Assistance Programme to Portugal da TesourariaeDívidaPública–IGCP)essentiallyrelatetothemanagementoffundsfrom The depositsfromthePortugueseTreasuryandDebtManagementAgency(AgênciadeGestão DENOMINATED INEURO NOTE 15• Other liabilities General government Other accruals Accruals fromcentralbankoperations Income collectedinadvance Income collectedinadvance and DebtManagementAgency(IGCP) Current accountsinthePortugueseTreasury Current accountsoftheautonomousfunds European FinancialStabilityFacility(EFSF) European FinancialStabilisationMechanism(EFSM) Current accountsofotherentities LIABILITIES TONON-EUROAREARESIDENTS LIABILITIES TOOTHEREUROAREARESIDENTS

31 Dec.2017 31 Dec.2017 142,548 142,207 117,516 9,369,829 8,952,911 8,139,512 24,691 361,621 813,399 416,918 55,297 341 338 3 31 Dec.2016 31 Dec.2016 13,010,559 11,845,234 10,996,366 1,084,316 1,165,325 56,237 55,907 20,311 35,596 848,868 81,010 331 328 3

Impairment ofassets be summarisedasfollows: Accounting movementsintheitemsImpairmentandProvisionsyears20162017may PROVISION NOTE 19•IMPAIRMENT,PROVISIONSANDGENERALRISK The estimateforincometaxissetoutinNote30. actuarial gains/losseswerenegativeandrecognisedunderOtherexpenses(Notes2732). 2017 In 1. Note of (m) 1.2 Section in described as Profit/loss, in recorded are review, under period the valuation carried outbySGFPBP.Actuarialgains/lossesassociatedwiththeseliabilities,calculatedattheendof actuarial an in computed service, of years for liabilities of value present the reflects 2017 The item Liabilities relating to the payment to employees of seniority bonuses as at 31 December banknotes denominatedinescudosstillwithintheexchangeperiod. the reductionsrecordedinthisitemwereexclusivelyduetodeliveryBancodePortugalof these canbeexchanged.Nobanknoteexchangeperiodexpiredin2017and2016,therefore holders of banknotes denominated in Portuguese escudos (legacy currency), for as long as The itemBanknoteswithdrawnfromcirculationrepresentsBancodePortugal’sliabilitytothe NOTE 18• and accruedsuppliesservicesfromthirdpartiespayable(€6,282thousand). thousand) (€18,409 costs staff accrued above-mentioned the essentially reflects accruals Other as explainedinNote6and22. Eurosystem accrues interest at the deposit facility rate as the actual rate is only known in 2018, Other accountsofreducedindividualvalue Other centralbankliabilities Estimate forincometaxes Liabilities relatingtothepaymentemployeesofsenioritybonuses Third parties Banknotes withdrawnfromcirculation Arrangement situations –BP/Finangeste Adjustments forSpecialcredit credit situations credit situations Adjustments forotherspecial institutions to reorganisationofcredit Adjustments forclaimsrelated rable amounts Adjustments forotherrecove- OTHER LIABILITIES–SUNDRY Balance as Balance as at 31 Dec. at 31Dec. 70,105 69,653 2015 439 13 – Increase – – – – – Transfer (5,899) 5,899 – – – 2016 31 Dec.2017 (62,522) (62,516) Decrease 562,010 130,377 242,271 152,654 13,583 21,344 1,782 (5) – – Valor líquido (62,522) (68,415) 5,899 (5) – 31 Dec.2016 369,441 174,367 154,674 13,200 17,943 8,670 Balance as at 31Dec. 587 2016 7,583 5,899 1,238 439 8 103 Notes on the Financial Statements 104 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Provisions balance sheet events, post- for Banks Central of System European the of framework reporting financial and accounting calculated based on the sale information in January 2018. This treatment is in accordance with the operations, related to a security held by a Eurosystem NCB. The amount of the provision was Council oftheECBdecidedtoestablish a provisionof€68.9 million forlosses on monetary policy Furthermore, as a result of the impairment tests conducted on the CSPP portfolio,the Governing the aforementionedArrangement(Note12). to BancodePortugalthrough the calculation of theannual instalments of 2016 and 2017, under Arrangement was related to the nominal amount of credit recoveredbythis entity and delivered The decrease in 2017 in Adjustments for Special credit situations regarding the BP/Finangeste the responsibilityofjudicialliquidatordesignatedbyBancodePortugalitself(Note12). the credit recoveryfollowingthe closure of the winding-up of Caixa Económica Açoreana, under claims related to reorganisation of credit institutions (decrease of €3,688 thousand), in relation to for Adjustments item the in movement significant was there assets, of impairment to regard In Impairment ofassets 15. Movements inthisprovision2016and2017wereasfollows: Council, inArticle8oftheECBAccountingGuideline(asamended). crisis was triggered in 2008. This provision policy is formally recommended by the Governing financial the since economies area euro the in developments following intervention bank central followed atEurosystem level, inlinewithdevelopments in therisksassociated with theneedfor The establishment ofprovisionssuchasBancodePortugal’s General riskprovisionhas been for subsequentperiods. use takes into consideration, among other factors, estimated future income and the risk projection The goaloftheGeneral risk provisionistocoverpotentialmedium-term risks andineach period its operations Provision forEurosystemmonetarypolicy General riskprovision General riskprovision – BP/FinangesteArrangement Adjustments forSpecialcreditsituations amounts Adjustments forotherrecoverable situations Adjustments forotherspecialcredit to reorganisationofcreditinstitutions Adjustments forclaimsrelated Article 4(3)oftheECBAccountingGuideline(ECB/2016/34). 15 made against the item Net result of pooling of monetary income (Note 26).

Balance as Balance as at 31 Dec. at 31Dec. 7,583 at 31Dec.2016 at 31Dec.2015 1,238 5,899 439 2016 Balance as Balance as - 8 4,246,622 4,046,622 Increase 1,706 - - - 6 6 Increase Increase Transfer 200,000 ------2017 2017 2016 Decrease (4,008) (3,688) (290) (30) - - Decrease Decrease (520,000) Net value (4,002) (3,688) 1,706 – (290) (30) 6 at 31Dec.2017 at 31Dec.2016 Balance as Balance as 4,246,622 3,726,622 Balance as at 31Dec. 3,581 1,706 2,211 2017 409 948 14 of theMinisterStateandFinance. incorporation of reserves, pursuant to a decision of the Board of Directors and upon authorisation The capitalofBancodePortugal amountsto€1,000thousandanditmaybeincreased, namelyby Movements in Equity for the 2016 and 2017 periods are set out in the Statement of Changes in Equity. NOTE 21• €4,680 thousandin2016). with €148,697 thousand in 2016) and in US dollars (€1,899 thousand in 2017 compared with relates ofsecurities fundamentally to securities denominated in euro (€21,834 thousand in 2017 compared price the in fluctuations from resulting gains unrealised in decrease The in SDR(€16,162thousand)(2016:USD€327,924thousand andSDR€33,136thousand). The item Foreign currency revaluation differences increased, driven by investments denominated from thefallingoldpriceeuro(Note2). Gold decreased €198,810 thousand, as a result of the reduction of unrealised gains resulting NOTE 20• movements intheGeneralriskprovision,decidedtoreduceitby€520,000thousand. de Portugal, maintaining the prudence perspectivethat it has adopted consistently in regardto the courseofyear.Takingthesefactorsintoconsideration,BoardofDirectorsBanco foreign exchangecomponent;and(iii)thereductioninriskfromsecuritiesthatmaturedover of financial losses; (ii) the reduction in volume of foreign reserves and euro assets, as well as their risks, namely(i)thematerialisationofriskassociatedwithownassetsthatledtorecognition sheet balance dePortugal’s ofBanco developments the influenced which programmes policy medium term.Furthermore,therewereextraordinaryeventsnotdirectlyrelatedtothemonetary expected to continue to grow, which will offset the aforementioned risk reduction effect over the by theGoverningCouncilondevelopmentsinthisprogramme,volumeofportfoliois from theendof2016,despiteitsincreaseinvolume.However,accordingtolatestdecisions the risk assessment methodology applied by Banco de Portugal, the risk from the PSPP decreased In 2017,thePortugueseRepublic’sratingwasincreased,withresultthat,inaccordance impact onBancodePortugal’saccounts(Section1.2(q)ofNote1). potential losses,includingthoseresultingfromdecisionstakenbytheGoverningCouncilwithan deemed satisfactory for holding the capital ratio at levels allowing the coverage, if necessary, of horizon, time set a for goal coverage risk strategic a define to used are These Eurosystem. the income projection and risk assessment, calculated according to the methodology adopted by Movements inthisprovisiontakeintoconsideration,amongotherfactors,themedium-term In 2017,BancodePortugaldecidedtoreducetheGeneralriskprovisionby€520,000thousand. Securities revaluationdifferences Foreign currencyrevaluationdifferences Gold revaluationdifferences EQUITY REVALUATION ACCOUNTS Revaluation accounts 31 Dec.2017 10,328,833 10,273,653 38,946 16,233 31 Dec.2016 11,026,701 10,472,463 174,926 379,312

105 Notes on the Financial Statements 106 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Interest expense increase in this item was the rise in interest from the portfolio denominated in foreign currency, average yields than most of the interest-bearing assets on the portfolio. Also contributing to the Due to the nature of their assets, the securities held for monetary policy purposes have higher in volume in Securities held for monetary policy purposes, as a result of the PSPP investment. The increase in the Net interest income item in 2017 was essentially driven by the sharp rise Interest income NOTE 22• deferred taxes,recognisedon31December2017(Notes30and32). in Equity, refer to actuarial gains/losses of the liabilities related to the Pension Fund, as well as to Movements in 2017 in non-distributableretained earnings, recorded inthe Statement of Changes to otherreserves,andthedistributionofdividendsStatetotalling€352,472thousand. year 2016 gave rise tothe transfer of€44,059 thousand to the legal reserveandan equal amount by the Minister of State and Finance, on a proposal of the Board of Directors. The net profit for the Board ofDirectorsandthe remainder tothe State, as dividends, ortootherreserves, as approved shall bedistributedasfollows:10%tothelegalreserve, 10% tootherreserves to bedecidedbythe In accordance with Article 53 (2) of the Organic Law of Banco de Portugal, the net profit for the year Longer-term refinancingoperations Off-balance-sheet instruments Intra-Eurosystem liabilities International MonetaryFund Liabilities toeuroarearesidentsdenominatedin Liabilities denominatedinforeigncurrency Other liabilitiestoeuroarearesidentsdenominatedin General government General government Liquidity-absorbing operations with minimumreserverequirements Current accountsofcreditinstitutionsforcompliance Other claims Lending toeuroareacreditinstitutions Securities Gold Off-balance-sheet instruments Medium-term investmentportfolio Intra-ESCB claims Securities heldformonetarypolicypurposes International MonetaryFund Balances withbanks,depositsandothermoneymarkets Denominated ineuro Denominated inforeigncurrency Denominated ineuro Denominated inforeigncurrency NET INTERESTINCOME Net interestincome

31 Dec.2017 1,009,750 1,097,343 119,806 803,414 87,593 81,018 21,530 95,979 10,766 26,648 37,414 18,853 77,125 1,398 5,177 3,990 7,013 1,231 6,240 714 0 8 4 0 – – – 31 Dec.2016 845,298 881,792 146,615 588,922 108,630 36,494 27,205 15,518 43,938 64,692 6,641 1,090 3,837 1,698 2,153 1,028 7,999 3,759 8,509 7,009 705 853 777 803 48 0 7 portfolios. are undertakenfromaperspectiveofinterestraterisk hedgingassociatedwiththetrading management purposesareanalysedtogetherwiththose ofrelatedassets,astheseoperations for results These futures. rate interest from losses realised in decrease the by offset partly euro, Furthermore, capitalgainsdecreasedfromsaleoperations ofsecuritiesinthetradingportfolio forward foreignexchangeoperations,essentiallyregardingsalesofUSdollars. positive valueof2016.Contributingtothissharpfallwerethelossesin2017fromspotand the to contrast in 2017, in negative were operations financial from arising gains/losses Realised FINANCIAL OPERATIONS NOTE 23• decision extendstointerestonotherBancodePortugalliabilities. depending on whether they are positive or negative in value. For reasons of consistency, this operations ispresentedatitsnetvalueundereitherInterestincomeorexpense, In a standardised way across the Eurosystem, positive and negative interest on monetary policy the Eurosystem(Note6). for calculatingtheTLTRO-IIinterestyear,asthisisdeemedaprudentapproachacross reliable estimate is not possible, the deposit facility rate (which is currently -0.4%) has been used Governing Council.Giventhattheactualrateontheseoperationsisonlyknownin2018anda similarly to 2016, arising from the introduction of the new TLTRO-II operations, by decision of the In 2017, the asset item Longer-term refinancing operations continued to record negative interest, on returnsmonetarypolicyassetsandliabilities. throughout 2017, similarly to 2016, when in March it reached a record low, with a direct impact 0% at rate operations refinancing main the kept Council Governing the regard, this In assets. interest main the of some on yields in decline general the by offset partly were increases These due totheincreaseintheiraveragebalance. interest receivablefromcurrentaccountsofcreditinstitutions(minimumreserveexcess),mainly driven byincomefromsecuritiesandgoldswapsforforeigncurrency,alongwiththerisein Interest ratefutures Financial operationsineuro Other financialoperationsinforeigncurrency Foreign exchangetransactions REALISED GAINS/LOSSESARISINGFROM

31 Dec.2017 (264,191) (117,719) (256,544) 91,015 19,057 31 Dec.2016 (291,798) 176,757 455,337 (27,693) 40,910 107 Notes on the Financial Statements 108 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 item Netresultofpoolingmonetaryincome. the in account, Loss and Profit the in recognised loss a by offset is and impairment total the of de Portugal’s portfolio. Therefore, the level of the provision reflects Banco de Portugal’s key share in the CSPP, which constitute a shared risk at Eurosystem level, even though they are not in Banco the ECBin of Council December 2017(toasumofaround€1,706million),forexpected lossesfromsecuritiesincluded theGoverning by as decided provision, specific includes also item This capital key,duetowhichareceivablefromotherEurosystem nationalcentralbankswasrecorded. to theyearbefore.BancodePortugal’sshareofthesecontributionsremainsbelowitsadjusted share ofBancodePortugal’snetcontributionsintheEurosystem’stotalcompared 17. 16. thousand This item contains the net result of pooling of monetary income, amounting to €128,592 NOTE 26•NETRESULTOFPOOLINGMONETARYINCOME Bank forInternationalSettlements(BIS),totheamountof€3,151thousand(2016:€2,320thousand). the in (ii) and thousand) €6,679 (2016: thousand €5,619 of amount the to ECB, the in (i) chiefly: 2016, In 2017 this item also included dividends received for Banco de Portugal’s participating interests in securities (2016:€23,931thousand). relating to this income in 2017, which only relates to the aforementioned portion of income from in the financial year to which they relate. This item includes the total amount of €24,463 thousand ECB distributes all of this income to the NCBs, unless otherwise decided bythe Governing Council the ECB’s income arising from securities purchased under the SMP, CBPP3, ABSPP and PSPP. The seigniorage incomewhicharisesfromthe8%shareofeurobanknotesallocatedtoECB;and(ii) The GoverningCounciloftheECBeachyearmakesadecisionaboutdistribution(i) PARTICIPATING INTERESTS NOTE 25• operations denominatedineuroandforeigncurrencyassets. financial to related components the in losses the in reductions the by offset partly was increase currency associatedwithUSdollar-denominatedassetsintheportfolioincreasedfrom2016.This Within unrealisedlosses,thecomponentrelatedtolossesoninvestmentsinforeign AND POSITIONS NOTE 24• Unrealised lossesoneurooperations Unrealised lossesoninvestmentsinforeigncurrency Unrealised exchangeratelosses €-9 thousand. Includes the proceeds of the calculation of monetary income for 2016, to the amount of €70,911 thousand and adjustments from 2015, amounting to to €-74thousand. amounting 2016, from adjustments and thousand €128,666 of amount the to 2017, for income monetary of calculation the of proceeds the Includes 16 (2016:€70,903thousand INCOME FROMEQUITYSHARESAND UNREALISED LOSSESONFINANCIALASSETS 17 ). Theincreasefrom2016wasduetothedecreasein 31 Dec.2017 260,333 230,186 18,669 11,479 31 Dec.2016 77,421 26,630 50,790 1

G H= E+F+G F E =C-D D C =AxB B A net resultarisingfromthepoolingofmonetaryincome(€126,886 thousand). established for the security held by a Eurosystem NCB in its CSPP portfolio (Note 19), gives the (ii) BancodePortugal’sshareoftheprovisionforlossesinmonetarypolicyoperationswhichwas (i) the adjustments made this year regarding 2016 to the amount of negative €74 thousand, and and itsallocationundertheaforementionedcapitalkey,amountingto€267,213thousand,less The difference between Banco de Portugal’s net contribution, amounting to €138,547 thousand, in proportiontotheirpaid-upsharesthecapitalofECB. The total net contribution from all Eurosystem NCBs is allocated to all NCBs in the Eurosystem of themonetaryincomeandgapistermednetcontribution. Portugal in 2016 and 2017, this difference is added to the monetary income to be pooled. The sum the earmarkable assets falls short of the value of its liability base, as was the case for Banco de be deductedfromthemonetary income tobepooled.Whenthegapisnegative, i.e. the valueof difference (called ‘the gap’), calculated at the latest available rate for the Eurosystem’s MROs, shall When the value of an NCB’s earmarkable assets exceeds the value of its liability base, the to eachNCB'scapitalkey Amount ofgoldholdingsinproportion assets andtheliabilitybase(seefollowingtable). The remunerationratedescribedbelowisappliedtotheitemscomprisingtheseearmarkable components ofasetliabilities–theliabilitybase. annual incomefromasetofassets–earmarkablelessinterest(accruedorpaid)on The amount ofeachEurosystem NCB’s monetary income is determinedbymeasuringthe actual foreign reservestotheECB(exceptgold) Claims equivalenttothetransferof denominated ineuro related tomonetarypolicyoperations Lending toeuroareacreditinstitutions maturity ofover1year monetary policyoperationswitha Accrued interestrelatingtoregular euro banknoteswithintheEurosystem Net claimsrelatedtotheallocationof SMP, CBPP3andPSPP-SUPRAportfolio CBPP, CBPP2andPSPP-GOVportfolio Earmarkable assets Steinhoff EuropeAGProvision Net resultofpoolingmonetaryincome relating topreviousyears Eurosystem adjustmentstotheresult ofthemethod Result ofthemethod Total effectivecontributionfromBancodePortugal Total reallocationtoBancodePortugal Paid-up capitalkey Total contributionfromallEurosystemNCBs Not applicable Applicable rates 0% operations rate Main refinancing rate Remuneration operations rate Main refinancing Rate ofreturn operations rate Main refinancing

Banknotes incirculation denominated ineuro related tomonetarypolicyoperations Liabilities toeuroareacreditinstitutions TARGET accounts Net liabilitiesarisingfrombalancesof 31 Dec.2017 10,788,991 Liability base 2.4767% 126,886 128,666 138,547 267,213 (1,706) (74) 31 Dec.2016 9,907,797 Applicable rates Not applicable rate Remuneration operations rate Main refinancing 2.4767% 174,477 245,388 70,903 70,911 (9) – 109 Notes on the Financial Statements 110 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Other staffcosts Voluntary socialcharges Compulsory socialcharges Other expenses Employees' salaries NOTE 27• and BoardofAuditors Remuneration ofthemembersBoardDirectors NOTE 28• full byBancodePortugal,inaccordancewiththedecisionofMinistryFinanceOctober2017. advice financial and legal of thousand expenses fromthesaleprocessofNovoBanco,forperiod2014to2016,whichwerebornein €13,987 includes expenses years fiscal Previous item The the year-endassessmentofliabilitiesfromSenioritybonuses(Note32). The Sundryexpensesitemin2017includes€209thousandfornegativeactuarialdeviations contribution plan(Note32). Defined- – Portugal de Banco of Fund Pension the to relating Account, Reserve the in gains for of Note 1 and Note 10 (€3,823 thousand and €46 thousand respectively); and (ii) €876 thousand to the implementation of the Net Asset Value valuation method, as explained in Section 1.2 (e) Pensões doBancodePortugal(BancoPensionFundsManagementCompany),due de Portugal’s participating interests in Valora, S. A. and Sociedade Gestora dos Fundos de Banco of value the of adjustment the from resulting profit (i) includes: income Sundry item The Banco dePortugalthroughtheBPNetportal(€2,944thousand). The itemSalesandsupplyofservicestothirdpartiesrelatesessentiallyprovidedby Other income Previous fiscalyearsexpenses Capital lossesontangibleandintangiblefixedassets Sundry income Sundry expenses Capital gainsontangibleandintangiblefixedassets Sales andsupplyofservicestothirdparties Previous fiscalyearsincome OTHER INCOMEANDEXPENSES STAFF COSTS

31 Dec.2017 31 Dec.2017 135,721 (5,573) 15,417 34,297 82,967 14,189 14,754 1,798 9,181 5,717 1,243 3,277 483 135 82 52 31 Dec.2016 31 Dec.2016 121,980 32,064 82,027 2,467 1,737 4,903 5,198 1,354 1,249 2,731 2,011 3,664 653 138 66 42 management andcostcontainment. resource efficient of objective strategic the with line in are reductions These thousand). (€65 and (ii)thereductioninrent paidonbuildingsthatwerenolongerusedbyBancode Portugal (€352 thousand)andmaintenance andrepairsofBancodePortugalpremises(€165 thousand) expenses electricity to relating essentially savings, effective (i) by offset were increases These €266 thousand). €76 thousand). This strategy alsohasanimpactontheitemSpecialisedwork–IT(increasingby the strategicinnovationinBancodePortugal’sinformation technology andsystems (increasing by technology and systems within the scope of the Eurosystem (increasing by €249 thousand) and The increase in Software licensing and maintenance (€386 thousand) is largely due to information of which€11,936thousandrelatestolitigationservices. and services from third parties relating tothisresolutionmeasure came to €11,943thousand, to thesaleofNovoBanco,bydecisionMinistryFinanceinOctober2017.Totalsupplies resulting from the fact that Banco de Portugal in 2017 began to bear in full the expenses relating of servicestotheresolutionmeasureonBancoEspíritoSanto,S.A.(€6,925thousand),partly The increaseinLitigationandnotaryservicesrelatedmainlytotheprovision NOTE 29•SUPPLIESANDSERVICESFROMTHIRDPARTIES agreement forthebankingsector(ACT). Furthermore, therewasa0.75%salaryupdatefollowingtherevisionofcollectivelabour rate usedto discount inthe thereduction of calculate thisannualcharge(Note32). the impact all above reflects and Company), dos FundosdePensõesdoBancoPortugal(BancoPensionFundsManagement increase (€2 million) results from the actuarial assessment made by the Sociedade Gestora This plan. Defined-benefit – Fund Pension the from charge annual the in 2016 from increase Therefore, disregarding the effect identified above, the growth was due largely to the significant increase in2017fromthatyear. 2% a giving thousand, €133,220 totalled have would year that for costs staff the 2016, in used amounts wererecordedunderRetainedearnings–Note32).Ifthesametreatmenthadbeen these years previous (in plan Defined-benefit – Fund Pension the under year, the in approved this itembegantoincludeamountsrelatingtheincreaseinliabilitiesforearlyretirements 2017 in that fact the to due chiefly was This 2017. in thousand €13,741 increased costs Staff Other suppliesandservicesfromthirdparties Software licensingandmaintenance Specialised work Rentals Maintenance andrepairs Litigation andnotaryservices Travel, accommodationandothertransport Electricity, fuelandwater Other specialisedwork Remuneration ofSGFP Use ofdatabanks IT Surveillance andsecurity 31 Dec.2017 55,871 13,066 6,039 7,272 3,788 2,861 2,497 2,173 3,993 2,660 5,232 2,912 3,378 31 Dec.2016 47,524 5,510 6,886 3,605 2,767 2,534 1,779 3,833 2,725 5,216 6,207 2,785 3,677 111 Notes on the Financial Statements 112 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 NOTE 30• 18. taxes. as wellthetaxburden,measuredthroughratiooftotalincometobefore Presented below are the expenses/income items comprising income tax on profit for the year, actuarial gainsandlosses(Note32). the increase in liabilities for current retired employees and pensioners resulting from negative plan Defined-benefit (ii) theportionofextraordinarycontributionto the PensionFund relating to coverageof – Fund Pension the from losses and gains actuarial of treatment In 2017,incometaxonretainedearningswastheresultof(i)2011changetoaccounting On 31December2017and2016,incometaxassetsliabilitieswerebrokendownasfollows: there willbenoadditionalsignificantpaymentsregardingpreviousfinancialperiods. that believes firmly Portugal de Banco of Directors of Board the However, payments. additional be may there legislation, tax of interpretations different of result a as Therefore, situation. tax Tax authoritiesareallowedafour-yearperiodduringwhichtheycanreviewBancodePortugal’s corporate andautonomoustaxes. B Tax burden Deferred tax Current tax Payments onaccountandadditionalpayments Withholdings atsource Estimated incometaxonretainedearnings Estimated incometaxonprofitfortheyear anco dePortugalissubjecttocorporateincometaxandthecorrespondingmunicipal Autonomous taxation Municipal corporatetaxandstatesurtax For theyear transitional regimeshouldberecognisedagainst equity. fund’s pension the to relating tax deferred and current the Thus, years. tax nine next the and year tax 2012 the for profit taxable of formation the in parts equal in included are they rather, Code, Tax Income Corporate the of 43 Article in established limits deductibility the in included not are years, tax in prior or year in that made to contributions in relation benefits, post-employment defined-benefit other and pensions from liabilities of nition sheet variations recorded inthe2011 tax year arising from thechange in accounting treatment ofactuarial gains and losses resulting from therecog- Law No 64-B/2011 was published on 30 December 2011 approving the State Budget for 2012, and lays down in Article 183 that the negative balance INCOME TAX Income beforetaxes Total incometax 271,237 927,721 271,964 202,662 29.24% 69,041 2017 (727) 262 (155,794) 271,964 (29,694) 86,469 2017 (7) 208,916 649,506 190,977 141,315 32.17% 17,939 49,524 2016 190,977 (80,993) (16,610) 138 93,365 2016 (9) 18 and Definitive differencestobeadded Liabilities Deferred taxassetsandliabilities–Effectofratechange Assets as follows: In 2017and2016,themovementsindeferredtaxassetsliabilitiescanbebrokendown Definitive differencestobededucted Profit/loss beforetaxes The reconciliationbetweenthenominalandeffectivetaxrates,presentedabove,isasfollows: Autonomous taxation Tax benefits post-employment orlong-termbenefits Expenses fromseverancebenefits,retirementbenefitsandother Adjustments frompreviousperiods Depreciation andamortisationnotdeductibleascosts Other Accounting capitalgains/losses Pension Fund Tax gains/losses Depreciation surplus(reinvestmentof capitalgains) and impairment Temporarily non-deductibleprovisions post-employment orlong-termbenefits of severancebenefits,retirementbenefitsandother Payment orplacementatdisposalofbeneficiaries Net AssetValue Tax calculatedatnominalrate Staff benefits Net jobcreation Charges notfullydocumented Other Restoration ofnon-deductibletaxandestimatesurplus Impairment losses Early retirements Seniority bonus Pension fund–transitionalregime

31 Dec.2016 41,983 42,311 31,299 4,915 3,876 2,222 (328) (328) 29.24% Rate 29.40% (0.01%) (0.25%) (0.12%) (0.09%) (0.01%) (0.01%) 0.15% 0.01% 0.01% 0.00% 0.00% 0.14% 0.00% 0.00% 0.03% 0.01% Equity (4,584) (4,584) (4,584) 2017 – – – – – Change in 2017 271,237 927,721 272,783 Tax (2,363) (1,141) 1,355 1,255 (799) (120) 262 (44) (75) (75) Profit/loss 58 64 28 48 (7) 9 (1,107) 1,466 (11) 727 738 379 (11) – 32.17% Rate 29.55% (0.13%) (0.01%) (0.19%) (0.02%) 0.00% 0.03% 0.00% 0.01% 0.00% 0.00% 0.07% 0.02% 0.00% 2.82% 0.01% 0.01% 2016 31 Dec.2017 38,127 38,465 26,715 6,380 4,255 1,115 649,506 208,916 191,907 (338) (338) Tax 18,311 (1,204) (815) (105) 189 450 138 (10) (57) (19) 36 52 44 (7) (3) 7

113 Notes on the Financial Statements 114 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 NOTE 31• limits. Also with respect to deferred taxes, it should be noted that temporary differences have no time the toptaxband. (State BudgetLawfor2018),whichlaysdownanincreaseto9%(from7%)inthestatesurtax rate from 2016 was the result of changes laid down in Law No 114/2017, of 29 December 2017 The rateusedtocalculatedeferredtaxin2017was31.33%(2016:29.36%).increasethis costs –Note28). the year, as the transaction originating the deferred tax began to be recognised as income (Staff for profit against recorded be to began retirements early with associated tax deferred 2017, In sheet date. differences are to be reversed, and are approved or substantially decreed rates as at the balance They arecalculatedbasedontaxratesexpectedtobeinforce on the date the temporary and their taxablebasis,usedintheprofitcalculation. andliabilities assets of value sheet balance the between differences deductible/taxable Deferred taxistheimpactonreceivable/payableinfutureperiods,resultingfromtemporary Assets Liabilities Irrevocable creditlines Items heldincustody Collateral received Collateral given Contracted financialoperations and impairment Temporarily non-deductibleprovisions Interest ratesubsidies Staff benefits Depreciation surplus(reinvestmentofcapitalgains) Early retirements Seniority bonus Pension fund–transitionalregime OFF-BALANCE-SHEET INSTRUMENTS

31 Dec.2015 61,179 61,517 20,533 37,470 3,510 (338) (338) 4 – 31 Dec.2017 32,374,746 59,378,744 (3,188,085) (1,464,598) (1,707,890) Equity (1,257) (1,257) (6,171) 4,915 – – – – – Change in 2016 Profit/loss (17,939) (17,949) (18,311) 366 10 10 (4) – – 31 Dec.2016 46,679,976 61,499,576 (3,454,849) (1,464,598) (4,686,739) 31 Dec.2016 41,983 42,311 31,299 4,915 3,876 2,222 (328) (328) – Currency forwards laid down that, from 1 January 2011, the active employees of Banco de Portugal, who were registered laid downthat,from1January 2011,theactiveemployeesofBancodePortugal,whowere registered the collectivelabourregulations forthebankingsector.Decree-LawNo1-A/2011of3January 2011 2009, whowerecoveredbya substitutivesocialsecurityschemeforbankemployees,enshrined in retirement and survivors pensions of staff (and their dependents) hired by the Bank before 3 March December2010BancodePortugalwasthesoleentityresponsibleforpayment ofthe 31 Until • of SDR783,500thousandundertheNewArrangementsto Borrow(NAB)(€930,485thousand). system totheamountof €2,257,600 thousand and a credit line grantedtotheIMF the amount financial Portuguese the of lines credit the on limit the records lines credit Irrevocable item The the ExtendedFundFacility,toamountof€6,060,673thousand(Note15). the valueofpromissorynoteinfavourIMFissuedbyPortugueseRepublic,under monetary policyoperationswithotherNCBs,undertheCCBM(€11,193,580thousand);and(iii) (€14,958,551 thousand);(ii)securitiesheldincustodybyBancodePortugalascollateral Items heldincustodyessentiallycomprises(i)securitiesownedbythePortugueseState respective haircuts. the CorrespondentCentralBankingModel(CCBM).Thiscollateralisvaluedatmarketrates,less the Eurosystem(€59,372,079thousandon31December2017),includingcollateralusedvia Collateral receivedprincipallyincludescollateralrelatedtothemonetarypolicyoperationsof under ArticleIII,Section4oftheIMF’sArticlesAgreement. Collateral given includes thepromissorynoteissued by BancodePortugalinfavourof the IMF, third parties with theirassetsandliabilities,asfollows: associated risks manage to but still essentially designed instruments financial derivative contract to only relate are under that operations financial outstanding attheyear-end.As31December2017and2016,thesepositions in positions open records item This AND OTHERBENEFITS NOTE 32• commonly used.(d)Thevalueofaccruedinterestcorrespondstoincomeandexpenseplusopenpositionsuntilthebalancesheetdate. the to corresponds profit/loss on effect models valuation the and conditions market current account into The taking positions, open of closing potential the of (c) Account Loss and Profit the on impact used. commonly models valuation the and conditions market current account into taking positions, open of closing potential the with associated expenses or income to corresponds value market The (b) contract. the of value notional or Theoretical (a) Interest ratefutures Currency swaps Pension FundofBancodePortugal–Defined-benefit plan Collateral given,collateralreceived,itemsheldincustodyandothercommitmentsto Contracted financialoperations Overview LIABILITIES RELATEDTORETIREMENT PENSIONS Purchases 290,169 15,848 25,336 Contract value (1,998,059) (a) Sales (15,848) (25,336) 31 Dec.2017 Market 1,326 value Net 305 – (b) Profit/loss 1,338 Net 318 – (c) interest Accrued Accrued (13) (12) Net – (d)

Purchases 1,159,767 184,927 11,445 31 Dec.2016 Contract value (5,846,506) (a) (184,927) (11,445) Sales 115 Notes on the Financial Statements 116 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 the HealthcarePlan: The tablebelowshowsthemostrelevantrisksamongthosearisingfromPensionPlanand in CaixadeAbonoFamíliadosEmpregadosBancários–CAFEB 20. 19. other pecuniarypayments. sector (ACT) made in 2016 remains suspended, with the exception of the increases in wages and concluded yet, implementation of the changes to the collective labouragreement for the banking As the revision process of the company-level agreements (Acordos de Empresa) has not been employees) relatedtopensionsinpayment. charges, includinginherentchargestoSAMS(socialhealthassistanceserviceforbankingsector payment of supplementary benefits and death grants, as well as the settlement by the sponsor of security), disabilitypensions,earlyretirementsurvivorsincludingthe age pensionsofmembers/statutoryretirement(asasupplementtothosepaidbythesocial old- include Fund Pension the of schemes above-mentioned the with associated benefits The 2009 (Decree-Law No March 54/2009 of 2 2 March 2009). after The Healthcare sector Plan is banking open for all the staff of in Banco de Portugal. working started that staff to closed are Plan Pension the of healthcare costsandfuneralexpensesfortheretiredemployeespensioners.Thethreeschemes of payment the for scheme benefit one only operating Plan, Healthcare the and schemes benefit three Defined-benefit plan was amended to include the existing two benefit plans: the Pension Plan, operating of liabilities from Banco de Portugal to the Pension Fund, the contract establishing the Pension Fund – which among plan, Defined-benefit – Fund Pension healthcare costsandfuneralexpensesfortheretiredemployeespensioners.Withthistransfer the to transferred were liabilities new 2014 In and deathgrantsremainedtotallyundertheFund’sresponsibilityaswell. agreements forthebankingsectorandonBank’sinternalregulations.Thepaymentofdisability labour applicable the on based are which plans, pension respective the in defined benefits the and make up for the difference between the benefits calculated under the general social security scheme and after1January2011thePensionFundonlycoverspaymentofsupplementintendedto maintained underitsresponsibilitythepaymentofpast-serviceliabilitiesuntil31December2010 Thus, the Pension Fund – Defined-benefit plan in terms of the statutory retirement/old-age pensions in the nowintegrated are general socialsecurityschemewithrespecttostatutoryretirementpensions. plan, Defined-benefit – Fund Pension the by covered and employees) Interest raterisk wages andpensionsgrowthrates Risk ofinflationimpliedinassumed Medical servicesinflationrisk general socialsecurityscheme Risk of regulatory changes to the Health risk Disability risk Longevity risk less favourableforemployeesthanthosecurrently recognisedinthevaluationmodeladopted. Note that this Instrument of the Collective Labour Agreement applies to a reduced number of the Bank’s employees; besides, overall, the changes are Dissolved bythisDecree-Law. Risk Sub-category 20 Risk ofreductionthefundingratioarisingfromadverseinterestratemovements. movements inhistoricaland/orexpectedinflationrates. Risk ofareductioninthefundingratioarisingfrommaterialisationadverse Defined benefitplan. in actuarialvaluations,resultinganincreaseofliabilitiesthePension Fund – Risk ofanincreaseinmedicalservicescostsandhigherinflationthanassumed security scheme,impactingonthePensionFund–Definedbenefitplan. Risk attachedtotheoccurrenceofregulatorychangesgeneralsocial Defined benefitplan. in actuarialvaluations,resultinganincreaseofliabilitiesthePension Fund – Risk ofanincreaseinmedicalservicescostsandhigherinflationthanassumed Pension Fund–Definedbenefitplan. assumed inactuarialvaluations,resultinganincreaseoftheliabilities Risk attachedtopotentialdeviationinthedisabilityrate,comparedwiththat of thePensionFund–Definedbenefitplan. with thatassumedinactuarialvaluations,resultinganincreaseoftheliabilities Potential riskattachedtoincreasinglifeexpectancyofthepopulation,compared Risk definition 19 (family allowance fund of bank (familyallowancefundofbank The mainactuarialandfinancialassumptionsadoptedarethefollowing: SGFPBP, usingtheProjectedUnitCreditMethod,inaccordancewithprincipleslaiddownIAS19. calculated on an actuarial basis by Sociedade Gestora dos Fundos de Pensões do Banco de Portugal – Liabilities arisingfromthe pension plan funded through the Pension Fund – Defined-benefit plan were The numberofmemberscoveredbythepensionplanisfollowing: The assumed average life expectancy for scheme members and beneficiaries of the Fund’s the of beneficiaries and pension planisthefollowing: members scheme for expectancy life average assumed The • gains andlossesfortheperiod.Therevisionofthisassumptionaimstomitigatelongevityrisk. actuarial on table the in illustrated as liabilities, in rise significant a into translating revised, was plan In 2017the mortality assumption used to calculate the liabilities of the Pension Fund – Defined-benefit Pensioners Retired members Active members Discount rate Pensioners Retired members Active members Tables used Pensions growthrate Wage growthrate assets Expected returnrateontheFund’s Femalepopulation general socialsecurityscheme(1styear) Statutory retirementageunderthe Pension FundofBancodePortugal Statutory retirementageunderthe Age differencebetweenspouses Percentage ofmarriedmembers Subsequent years Subsequent years - Mortality–Malepopulation 1st year 1st year - Disability - Turnover - Turnover – Pension FundPlans – b) Methodology,assumptionsandaccountingpolicy a) Pension plan Scheme members Average lifeexpectancy(years) Number ofschememembers TV 88/90adjustedby4years TV 88/90adjustedby1year 1978 –S.O.A.Trans.Male(US) 31 Dec.2017 T-1 CrockerSarason(US) 66 yearsand4months 1.786% 0.750% 2.786% 1.750% 1.803% n/a Actuarial andfinancialassumptionsused 65years 3 years 80% 31 Dec.2017 31 Dec.2017 3,621 1,978 1,054 1 Jan.2017 589 13 15 34 TV 88/90 1.682% 0.750% 2.682% 1.750% 1.619% 1.619% 1978 –S.O.A.Trans.Male(US) 31 Dec.2016 T-1 CrockerSarason(US) 66 yearsand3months 1.682% 0.750% 2.682% 1.750% 1.619% n/a 31 Dec.2016 31 Dec.2016 TV 88/90 65 years 3 years 80% 3,666 1,935 1,146 585 11 13 32 1 Jan.2016 1.466% 0.000% 2.466% 1.000% 2.170% 2.170% 117 Notes on the Financial Statements 118 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 according toIAS19.Themostimportantarethefollowing: The actuarial and financial assumptions used in the calculation of these liabilities are established The assumedaveragelifeexpectancyforschememembersandbeneficiariesisthefollowing: The numberofmemberscoveredbythepensionplanisshownintablebelow: the PensionFund’sliabilities. bonds issued,whoseliquidity,denominationandmaturityareadequatetothetermstructureof The discountratecalculatedbySGFPBPisbasedontheyieldofabasketcomprisedhigh-quality Tables used Femalepopulation Growth rateoftheaverage/annualexpenses Fund’s assets Expected returnrateonthePension Discount rate Pensioners Retired members Active members Retired membersandpensioners Active members Age differencebetweenspouses Percentage ofmarriedmembers general socialsecurityscheme(1styear) Statutory retirementageunderthe Pension Fund–Defined-benefitplan Statutory retirementageunderthe Other Disability pensions Disability pensions - Mortality–Malepopulation - Disability - – Turnover – b) Methodology,assumptionsandaccountingpolicy a) Schememembers Healthcare plan

Average lifeexpectancy(years) Number ofschememembers TV 88/90increasedby4years TV 88/90increasedby1year 1978 –S.O.A.Trans.Male(US) 31 Dec.2017 T-1 CrockerSarason(US) 4,198% 5,635% 1,803% 66 anose4meses Pressupostos atuariaisefinanceirosutilizados n/a 65 years 3 years 80% 31 Dec.2017 31 Dec.2017 4,267 2,512 1,755 1 Jan.2017 13 15 41 TV 88/90 4,075% 5,512% 1,619% 1,619% 1978 –S.O.A.Trans.Male(US) 31 Dec.2016 4,075% 5,512% 1,619% T-1 CrockerSarason(US) 66 anose3meses n/a 31 Dec.2016 31 Dec.2016 TV 88/90 65 years 3 years 80% 4,268 2,475 1,793 11 13 38 1 Jan.2016 3,853% 5,290% 2,170% 2,170% Impact onthePensionFund’sassets values adopted: The table below shows sensitivity of the Fund’sassets and liabilities to changes in the assumption the rateofincreasesalariesandpensions. due totheirimpactonthevalueofliabilities,arethoserelating tolongevity,thediscountrateand Among the several assumptions adopted in the valuation of the Fund’s liabilities, the most relevant of mitigationthroughfinancialinstrumentsinordertopreservethefundingratio. liable liabilities, assumed in implied risks the cover to driven is management financial Fund’s The as wasthecaseuntil2016(Note28). retirements started to be recognised as staff costs, instead of being recorded in retained earnings In 2017thevalueassociatedwithincreaseinliabilitiesarisingfromapprovalofearly and 2016: The tablebelowpresentsdevelopmentsinpastserviceliabilitiesofthePensionFund2017 Total pastserviceliabilitiesofthePensionFund • Impact onthePensionFund’sliabilities Impact onthePensionFund’sfundingratio Past-service cost Actuarial gains/losses Increase inliabilitiesarisingfromearlyretirements Benefits payable(expectedvalue) Interest cost Current servicecost Value atthebeginningofyear Healthcare Death grants charges toSAMS Pensions’ inherent survivors benefits Retirement and Changes inassetsandliabilitiesofthePensionFund 31 December2017 Sensitivity asat Past-service liabilities members and

pensioners 1,160,793 1,042,544 Retired 55,948 60,162 2,139 One-year increase in lifeexpectancy 31 Dec.2017 Value attheendofyear members -4,3% 737,353 671,772 Active 0,0% 4,3% 27,827 37,025 730 1,898,147 1,714,316

83,774 97,187 Total in thediscountrate 2,870 10 b.p.reduction -0,6% 1,0% 1,6% members and pensioners 1,034,297 Retired 929,698 1,898,147 1,761,650 49,065 53,455 2,080 149,091 (67,498) 2017 10,463 28,521 15,920

– 31 Dec.2016 and pensionsgrowthrates 10 b.pincreaseinwages members 727,353 664,365 Active 26,524 35,671 793 -0,4% 1,1% 1,5% 1,761,650 1,596,223 171,090 (66,116) 2016 11,240 34,638 14,147 428 1,594,063 1,761,650 Total 75,589 89,126 2,873

119 Notes on the Financial Statements 120 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 end of2016(103.2%). At theendof2017fundingratioPensionFund stoodat102.2%,i.e.lowerthanthe Fixed incomesecurities Variable incomesecurities for thevalueof€25,402thousand. Land andbuildingsincludestheCastilhoBuilding,usedbyBancodePortugal,recordedin2017 The Fund’sassetscanbebrokendownasfollows: these twoaggregates,stoodat-5.6years(2016:-3.2years). between differences size the incorporate to as so adjusted liabilities, of duration modified the and side assets the on portfolio bond the of duration modified the between difference the and years) 15.3 (2016: years 16.0 at stood liabilities of duration modified the 2017 December 31 On that saidgrowthrateisindexedtotheassumptionforinflation. Pension plan’sliabilities;theimpactmeasuredinFund’sassetsisbasedonassumption Note thatintermsofwagesandpensionsgrowthrate,itschangeonlyimpactsthevalue Benefits andinherentchargespaidbytheFund Extraordinary contributionspaidtotheFund Net incomeoftheFund Other Cash andbankdeposits Contributions paidonaccountofearlyretirements Fixed incomesecurities Variable incomesecurities Land andbuildings Current contributionspaidtotheFund Value atthebeginningofyear On accountoftheemployees On accountoftheBank Other Government debt Participation units–Investmentfunds Securities portfoliooftheFund Fund's investments Fund’s assets Valueattheendofyear 31 Dec.2017 31 Dec.2017 1,939,124 1,818,648 1,939,124 1,749,670 1,575,133 1,575,133 133,600 (71,623) 174,537 163,926 174,537 2017 32,244 10,463 13,826 15,792 12,217 13,310 1,966 – 31 Dec.2016 31 Dec.2016 1,818,648 1,663,425 1,818,648 1,653,085 1,517,489 1,498,477 142,462 (69,523) 135,596 120,831 135,596 2016 11,240 56,700 12,349 14,344 35,058 19,012 1,995 9,674 Financial gainsandlosses Staff costs summarised asfollows: be can plan Defined-benefit – Fund Pension the to relating costs staff in recognised amounts The liabilities (€55,530thousand). the upwardmovementofinterestrates,translatedintogains,mirroredinareductionFund’s The change between the discount rate used at the beginning and at the end of 2017, resulting from partly fundedthroughtheextraordinarycontributionpaidbyBancodePortugal. assumption used,whichresultedinactuariallossesofaround€-210,937thousand,were the of effect combined the of update ofassumptions(Othergainsandlosses).Theseincludethevaluerelatingtonewmortality terms in losses are there 2017 in losses and gains actuarial to As Actuarial gains/losses as follows: The value of actuarial gains and losses calculated in 2016 and 2017 can be broken down (a) Excludescostsbornebystaffandotherentities Gains andlossesinexpectedincomeoftheFund Indexation ofassumptions: Other gainsandlosses Gains andlossesinpaidpensions Expected returnontheFund'sassets Interest cost Increase inliabilitiesarisingfromearlyretirements Current servicecost Adjustments tothemodel Change inaveragehealthcareexpenses Increase inpensions Wage growth Technical gainsandlosses Population movements Discount rate Increase inpensions Wage growth (a) 31 Dec.2017 (150,417) (149,091) (205,011) (11,058) (12,660) (1,326) (29,444) 55,530 22,239 (4,125) (2,602) 23,024 28,521 13,483 10,463 2,799 2,837 2017 609 834 192 31 Dec.2016 (171,090) (138,689) (68,131) 102,959 106,366 (13,018) (23,815) (36,096) 10,205 (3,407) (4,745) (3,850) (5,553) 10,211 34,638 11,669 6,353 1,485 2016 537 –

121 Notes on the Financial Statements 122 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 The tablebelowshowsthemostrelevantrisks: in the banking sector after 3 March its staff,asregardsBancode Portugal staffwhostartedworkinginthebankingsectorafter3March supplementary defined-contribution pension plan, funded through contributions from the Bank and 2009 in Boletim do Trabalho e Emprego (work and labour bulletin) provided for the setting up of a The changesintroducedintoBancodePortugal’scompany-level agreements,publishedon22June (2016: 1,793). The populationconsideredforthecalculationoftheseliabilities inDecember2017is1,755participants The main actuarial and financial assumptions used in the calculation of these liabilities are the following: years). 10.2 (2016: years 10.3 at stood liabilities of duration modified the 2017 December 31 On Changes inpastserviceliabilitieswereasfollows: growth rate Risk ofundervaluationwage Interest raterisk in 2017startedtoberecognisedstaffcosts(Note28). As referredtoabove,thevalueassociatedwithriseinliabilitiesarisingfromearlyretirements Actuarial gains/losses Interest cost Current servicecost Seniority bonusespaid Wage growthrate Discount rate Value atthebeginningofyear Tables used Femalepopulation general socialsecurityscheme(1styear) Statutory retirementageunderthe Pension Fund–Defined-benefitplan Statutory retirementageunderthe - Mortality–Malepopulation - Disability - Turnover - Turnover – – 1st year Subsequent years – – Seniority bonuses Pension FundofBancodePortugal–Defined-contribution plan Risk Sub-category Past-service liabilities Value attheendofyear valuations, resultinginanincreaseoftheliabilitiesarisingfromthesebenefits. Risk ofcareerprogressandinflationbeinghigherthanassumedinactuarial arising fromthesebenefits. Risk ofadverseinterestratemovements,resultinginanincreasetheliabilities TV 88/90adjustedby4years TV 88/90adjustedby1year 1978 –S.O.A.Trans.Male(US) 31 Dec.2017 T-1 CrockerSarason(US) 1.354% 1.750% 66 yearsand4months 2.575% Actuarial andfinancialassumptionsused 65 years Risk definition 13,583 13,200 (1,115) 2017 1,120 1 Jan.2017 TV 88/90 209 168 1.276% 1.750% 2.524% 1978 –S.O.A.Trans.Male(US) 31 Dec.2016 T-1 CrockerSarason(US) 1.276% 1.750% 66 yearsand3months 2.524% TV 88/90 65 years 13,200 11,981 (1,285) 2016 1,340 199 965 1 Jan.2016 1.663% 1.000% 2.207% defined bytheBoardofDirectors ofBancodePortugal. and prudent effective risk management policy, taking into account the risk profile and degree of tolerance its guaranteeing strict and a pursues and defined has independence Portugal de Banco Therefore, Eurosystem. its the in participation safeguarding itself, Portugal de Banco of profitability and sustainability the ensure to designed is Portugal de Banco in management Risk NOTE 33• annual revaluationarerecognisedintheProfit/lossaccountofBancodePortugal: The table below shows movements in the Reserve account of the sponsor; the results of the its membersbytheamountscorrespondingto: Participation unitsofthisreserveaccountaretransferredmonthlytotheindividualaccounts follows: As at 31 December 2017 the assets of the Fund amounted to €26,472 thousand broken down as financial constraintsinconnectionwiththereducedamountundermanagement. Reserve accountwasincreasedby€20millionwithaviewtoaddressingtheFund’soperationaland which constitutedareserveaccountinitsname,calledReserveofthesponsor.In2016 When thisPensionFundwassetup,BancodePortugalmadeaninitialcontributionof€5million, 723 members(2016:664). At theendof2017,supplementarypensionplanfundedthroughthisPensionFundcovered be changedannuallyontheemployees’initiative. can vehicle funding The contributions. their for profile investment an choosing for responsible also its employees who wish to join it. Employees can join this Fund or another of a similar nature and are Banco dePortugalsetupaclosedpensionfundinordertocreateanalternativefundingvehiclefor this pensionplan. voluntary forthemembersandcompulsorysponsorwheneverparticipantadheresto is rights, vested with contributory is which plan, pension defined-contribution supplementary This 2 March2009(Section1.2(l)ofNote1).Thisplanwascreatedin2010,backdatedto23June2009. 2009 andarecoveredbythegeneralsocialsecurityschemevirtueofDecree-LawNo54/2009 Revaluation oftheperiod(Note27) Members’ individualaccounts Reserve account(Note12) Increase inthereserveaccount Transfer ofrightstomembers–contributionstheyear ii) The contributions from the active members (by withholdingeachmonth these amounts i) ThecontributionsfromBancodePortugal;and when salariesareprocessed). Reserve accountofthesponsor Participation units(invalue) RISK MANAGEMENT Value atthebeginningofyear Value attheendofyear 31 Dec.2017 23,806 26,472 23,503 23,806 2017 2,666 (573) 876 – 31 Dec.2016 23,503 25,522 20,000 23,503 2016 3,770 2,018 (510) 243

123 Notes on the Financial Statements 124 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 from theoperationswhoserisk isdirectlyassumedbyBancodePortugal. Eurosystem’s global exposure imputable to Banco de Portugal, according to its capital key, and The exposure to credit risk arising from monetary policy operations results from the share of the developed bytheEurosystem. expected shortfall is state-of-the-art commercial software and the integrated financial risk model and mainrisk positions ofthe measures. ComplementingthecalculationofVaR/expected shortfallandcreditVaR(CVaR)/ themonitoring and the operations of settlement financial the to theoneusedbyECBandmostNCBsofEurosystem. Thissystemalsoexecutes performed throughaninformationsystemforthemanagement ofreservesandassets,similar performance allocation and control of limits and restrictions of asset management operations is interest rate risk-sensitivity measures, such as the modified duration. The valuation, assessment, as wellbysettinglimitstoforeigncurrencypositions, andmonitoringdevelopmentsin the useofmarketindicators.MarketriskiscontrolledthroughapplicationlimitstoVaR, by ratingagenciesandincorporateaqualitativeassessmentofallinformationavailable,including Portugal. Inthecaseofcreditrisk,saidcriteriaandlimitsarebasedonriskratingsassigned Banco dePortugal’sowninvestmentassetsendorsedbytheBoardofDirectors eligibility criteriaandlimitswhicharesetoutintheGuidelinesrelatingtomanagementof The control of risk in asset management operations is based on the imposition of a number of deviation margin. in guidingassetmanagementandservesasabasissettingtheallowed in force for the period of one year and may be reviewed at mid-term – plays an important role various optimisationexercisestodetermineefficientportfolios.Thebenchmark–whichremains of undertaking the and variables financial and of economic thediscussion main the for forecasts reflects and scenarios benchmark This risk-profitability. of terms in Portugal de Banco of Department based on a strategic benchmark, reflecting the preferences of the Board of Directors Banco dePortugal’sowninvestmentassetsaremanagedbytheMarketsandReserveManagement regular sensitivityanalysisandstresstestingexercises. indicators, amongothers,whichareproducedandreleasedonadailybasis,aswellthrough Monitoring andcontroloftheserisksismadethroughValueatRisk(VaR)expectedshortfall rates andthepriceofgold. exchange prices, asset financial of fluctuations the and issuers, and counterparties by default participation inthemonetarypolicyofEurosystemandcompriselossesresultingfrom Financial risksprimarilyariseinthemanagementofowninvestmentassetsandfrom • of compliancerisk,inBancodePortugal. ethics and conduct, and managing coordination, identification, monitoring, control and mitigation Banco de Portugal also has a Compliance Officer position, responsible for advising and monitoring Portugal. departments, being monitored by the Board of Auditors and the Board of Directors of Banco de Management Department in articulation with the Risk Committee and Banco de Portugal’sother The integrated management of the financial and operational risks is the responsibility of the Risk – Financial riskmanagement – Risk managementpolicies The comparison between the market value and the balance sheet value of the main financial assets measuredatamortisedcoston31December2017and2016isasfollows: main the of value sheet balance the and value market the between comparison The implemented. controls the of effectiveness the reflecting force, in level tolerance the with compatible zones in are identified risks main the that suggest assessment that of results The activity. financial facing financial and non-financial risks, specialising in the identification and assessment of the main risks Banco de Portugal is equipped with tools that provide a comprehensive and consistent outlook of well asthepoliciesandpracticesfollowedbycommunity ofcentralbanks. as standards international the account into take and Portugal, de Banco of aspects specific the framework for operational risk management endorsed at Eurosystem/ESCB level, adjusted for Banco dePortugal’soperationalriskmanagementpolicy andmethodologybroadlyfollowthe on BancodePortugal’sactivityandassets. Supervisory Mechanism and from other requirements that may have a material negative impact mission and goalsarisingfromlegislation,itsparticipationintheEurosystem/ESCB/Single tasks, operations and projects that may jeopardise the pursuance of Banco de Portugal’s The scopeoftheoperationalriskmanagementprocessincludesallprocesses,activities,functions, business processes,staff,systems,orthird-partyactions. Operational risk is related to losses arising from weaknesses, inadequate performance of internal • recognised onthefinancialstatements(Section1.2(f)ofNote1). assets financial the of value market the assess to used also are markets active from Quotations presented previously. Quotations annual movementsintheGeneralriskprovision(Note19). of assessment the in used also is exercise This buffers. financial Portugal’s de Banco by levels developments in assets and liabilities, but also the constant assessment of the risk coverage for themediumterm,whichenablesnotonlymonitoringoftheserisksagainstexpected Banco dePortugalrunsaprojectionexerciseofthefinancialstatementsandbalancesheetrisks framework ofthenon-standardmonetarypolicymeasures. the ECB,supplementedbyinternalmeasuresforinterventionportfolios,createdwithin level. Follow-up and monitoring is made through a series of aggregate risk indicators produced by The riskof these operations is controlled by applying rules and procedures defined at Eurosystem Securities heldformonetarypolicypurposes(Note7) Medium-term investmentportfolio(Note10) Operational riskmanagement – – Fair value from active markets were used to assess the market value of the securities, as 52,297,501 46,968,576 Amortised 5,328,925 cost 31 Dec.2017 54,831,565 49,271,414 5,560,151 Market value 37,196,283 32,253,673 Amortised 4,942,611 cost 31 Dec.2016 36,651,069 31,420,990 5,230,079 Market value 125 Notes on the Financial Statements 126 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Documents (LeideAcessoaosDocumentos Administrativos). was impossible,asitisreserved underArticle6(6)oftheLawforAccesstoAdministrative under Article80ofRGICSFand onthegroundsthatdisclosureofcertainmaterialandinformation Banco dePortugalcontested alltheselawsuits,boththroughinvocationofsupervisory secrecy Management Exercise. process, in the form of the Share Purchase Agreement and the documents related to the Liability the sale processofNovoBancotoLoneStar,requestingthat BancodePortugalmakeavailablethat to relate proceedings these of Most certificates. of issuance and information of provision Pending attheAdministrativeCourtofLisbonDistrict arecourtorderproceedingsforthe Following the application of this measure, various proceedings were filed in court, as described below. deliberation. the to 2 Annex in defined criteria the with accordance in RGICSF, of 145-H(1) Article of provisions management ofBESweretransferredtoNovoBanco,underthetermsandforpurposes under assets and items off-balance-sheet liabilities, assets, the (5pm), 2014 August 11 of Directors Banco dePortugalof3August2014(8pm),asamendedbythedeliberationsameBoard In thisregard,asdeterminedbythesecondpointofdeliberationBoardDirectors terms ofArticle145-C(1)and(3)(c)RGICSF. established followingBancodePortugal’sapplicationofaresolutionmeasuretoBES,underthe 145-G(5) ofRGICSF,approvedbyDecree-LawNo298/9231December1992,NovoBancowas by deliberation of the Board of Directors of Banco de Portugal of 3 August 2014, under Article sector, financial Portuguese the of authority resolution as competences Portugal’s de Banco Within Geral dasInstituiçõesdeCréditoeSociedadesFinanceiras–hereinafter“RGICSF”). national resolutionauthority,underthetermsofitsOrganicLawandLegalFramework(Regime as activity its of virtue in specifically courts national administrative) and (civil in Portugal de Banco (hereinafter “Novo Banco”), led to a significant increase in litigation, with proceedings brought against of the transfer of most of that institution’s activity and assets to a bridge bank, Novo Banco, S. A. By itsnature,theresolutionprocessofBancoEspíritoSanto,S.A.(hereinafter“BES”),inform • below: lawsuits, consideringboththequantityandsubjectofproceedingsinquestion,ispresented The BoardofDirectors’assessmentBancodePortugal’scurrentpositioninthemostimportant statements ofBancodePortugal,andresultfromtheexercisetheirlegalpowers. proceedings and the winding up proceedings of , these do not have a direct impact on offence administrative the monitors regularly financial Portugal de Banco of Directors of Board the Although disputes. labour winding upofandmonitoringproceedingsrelatedto lawsuits, precautionary measures, administrative offence proceedings (judicial phase), monitoring of litigationcurrentlypendingfallsintothefollowingcategories:commonlawsuits,administrative The certain cases,externallawyers. de Portugal, with technical and legal work undertaken by its Legal Services Department and, in Developments intheseproceedingsaremonitoredregularlybytheBoardofDirectorsBanco As at31December2017,variouslegalproceedingswereinprogressagainstBancodePortugal. NOTE 34• Resolution measureappliedtoBancoEspíritoSanto,S.A.(BES) i) Courtorderproceedingsfortheprovisionofinformationandissuancecertificates LEGAL PROCEEDINGSINPROGRESS defence basedongroundsof exception)orthecurativephase. the irregularities attributed to the deliberations are always contested, sometimes presenting through theinitialpetition and corresponding objection fromBanco de Portugal in which Most of the proceedings are still in the initial exchange of information phase (filing of the lawsuit available atpresent,webelievesuccesstobemoreprobable thanfailure. Portugal onanyothergrounds,inrelationto which, given thelegalandproceduralinformation naturally, fromothersthatmayariseanycivilresponsibility lawsuitsagainstBancode of the resolution measure subject to the judicial decision. However, this compensation is distinct, then itshallbetheResolutionFundthatsupportsanycompensation payableforthecontinuation continue, should measure for public resolution the that, of deems effects the reasons, authority stability financial the resolution and interest and decision final a by cancelled be to were resolution measure and to its implementation. On grounds of consistency, if a resolution measure the current version, is that the Resolution Fund is the entity that provides financial support to the behind the resolution regime, both in the version prior to publication of Law No 23-A/2015 and in to theapplicationofresolutionmeasuresadoptedbyauthority.Therationale assistance financial provide to RGICSF, of 153-C Article under is, which consideration, into taken Indeed, inordertoanalysetheriskoftheselawsuits,purposeResolutionFundmustbe awards responsibilityforanycompensationclaimstotheResolutionFund. Banco de Portugal at present, since the legal framework in force at the time of the resolution for risks financial present not do proceedings those that counsel, legal external and internal its measure exclusivelywasrequested,BancodePortugalbelieves,supportedbytheopinionof judged tobewell-founded.Inthoselawsuitswherethecancellationofappliedresolution not besentencedtopayanyamount,asidepossiblyfromlegalcosts,shouldthelawsuits would it as Portugal, de Banco for risk financial any carry not do lawsuits aforementioned The deeds). Courts ProcedureCode(whichsetsthislimitforrequestingthecancellationofadministrative Board ofDirectorsBancodePortugal,incompliancewithArticle58(1)(b)theAdministrative were mostly brought within the three-month limit following publication of the deliberations of the measure, chiefly the deliberations of 3 and 11 August 2014 and 29 December 2015. These lawsuits the deliberations of the Board of Directors of Banco de Portugal regarding the BES resolution Pending attheAdministrativeandFiscalCourtsareproceedingsrequestingcancellationof of cashsums,duetowhichthereisnofinancialriskfromthesetypesproceedings. have to provide information and issue certificates, which will not involve at any time the payment only will it decision, final a by sentenced is Portugal de Banco if proceedings, of types these In Banco dePortugalhasnotdisclosedanydocumentdeemedconfidential. developments. final their awaiting are thus proceedings These District. Lisbon the of Court Administrative the before invoked grounds the reaffirming decisions, those against appealed Portugal de Banco in cases isolated the which Banco de Portugal was sentenced to supply the requested documents without redaction, In confidential. deemed material to regard in documents, the redact to sentencing Banco de Portugal to supply the documents recognise Banco de Portugal’s right In certain proceedings, the courts have already delivered judgements. Even those judgements ii) Requestsforcancellationoftheresolutionmeasureapplied 127 Notes on the Financial Statements 128 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 involve considerable legal complexity, it is impossible at present for Banco de Portugal to predict the involve considerablelegalcomplexity, itisimpossibleatpresentforBancodePortugalto predict the As the contentious matters subject to these proceedings have no doctrinal or case-law precedent and absolved throughlackofjurisdiction andaround10%dismissedtherequest. Regarding the decisions that reached conclusions in regard to the Resolution Fund, around 90% over thedisputesregardingBancodePortugal. Court. It should be noted that to date, no civil courthas deemed that it has material jurisdiction further deeming themselves without jurisdiction also, by reason of the subject matter – whichledto the Fund). There has been a case of the Administrative Courts receiving remitted proceedings and the AdministrativeCourts(where,todate,chargeshaveonly beenbroughtagainst the Resolution In certaincases, theCourtwasdeemedtohavenojurisdictionandproceedingswereremitted Banco dePortugal. of favourable decisions have already been handed down, absolving the Resolution Fund and also of exceptionpresented by BancodePortugaland/ortheResolutionFund,aconsiderablenumber These suits are for the most part in the prior hearing phase. Following defence based on grounds and non-physicaldamagesarisingfromdepositsinBES. a sentence for Banco de Portugal and/or the Resolution Fund to pay compensation for physical Pending at the Civil Courts and also the Administrative and Fiscal Courts are proceedings requesting is noevidencetorefuteourbeliefthatsuccessmoreprobablethanfailure. sought. In the other cases, given the legal and proceduralinformation available at present, there not is amount cash specified a of Portugal de Banco by payment lawsuits aforementioned the in as Portugal, de Banco for risk financial of type any carry not does question in deliberations the tendencyofdecisionstobedeliveredbyCourts.However,cancellation ruled infavourofBancodePortugal,itisimpossibleatpresentforPortugaltopredict As these matters have no doctrinal precedent and only one case-law precedent, which was to theotherproceedings,BancodePortugaliswaitingfortheirfinalphases. a result the case was ruled infavourof Banco de Portugal with regardtothese issues. In relation allegations in June2017. 2017, On 16October the Courtdeemed theappealinadmissible,andas July 2014. This judgement was appealed and Banco de Portugal presented its respective counter- of trustinthepressreleases principle and statements of BancodePortugalandtheGovernor to the alleged violation of the ownership right of BES shareholders and the alleged violation of the regard in Law the with compliant was position Portugal’s de Banco that finding judgement the of as unfounded all theillegalities alleged bythecomplainant, particularly inregardtothe sections of the European Commission on the authorisation of the resolution on BES. The Court considered relating to the recitals of the Deliberation of 3 August 2014 and those contained in the Decision number 2842/14.0BEPRT, absolving it and finding proven all the facts alleged by it, including those Finally, the Administrative and Fiscal Court of Porto ruled in favour of Banco de Portugal in case of proceedingstobetreatedwithpriority). 48 oftheAdministrativeCourtsProcedureCodeshouldbeappliedtotheselawsuits(selection August 2014), the discussion essentially focuses on whether the framework laid down in Article contesting thedeliberationsofBoardDirectorsBancodePortugal3,11and14 Furthermore, inregardtotheproceedingscontestingBESresolutionmeasure(i.e. iii) Requestsforreimbursementofsumstransferredand/orcompensation eig (ruh aant h Rslto Fn) o h Conflicts the to Fund) Resolution the against (brought remission ofthose proceedings Within the exercise of its powers as resolution authority of the Portuguese financial sector, sector, financial Portuguese the of authority resolution as and supported by Article 17-A of the Organic Law of Banco de Portugal and Articles 145-E and powers its of exercise the Within • precautionary retentionofthebondsthattheyhadacquired inBES. Finally, there are also the lawsuits of the members of the Board of Directors of BES contesting the de Portugal. Banco for risk financial no is there that indicate factors These delivered). be to not lawsuit main the in judgement final a for individuals of rights the safeguard only they (as lawsuits main the to process ofNovoBancoisnowatanendand(iv)theinjunction proceedingsareinstrumental favour of Banco de Portugal; (ii) the provisional decisions did not grant injunctions; (iii) the sale in ruled been already has identified proceedings injunction the in merit on decision a (i) regard: the tendency of the decisions to be deliveredbythe Courts. However, the following applies in this As these matters have no doctrinalorcase-law precedent, BancodePortugalisunabletopredict Resolution Fund. The provisionaldecisionsdeliveredtodatewereallruledinfavourofBancodePortugaland/orthe the exchangeofinformationphasehasended,andBancodePortugaliswaitingforitsfinalphases. which ruledfullyinfavourofBancodePortugal.Intheotherfourpendinginjunctionproceedings, Fund presentedcounter-allegationstotheappeal,afterjudgementdeliveredhadbeenappealed, and theResolutionFund.Inother,inDecember2017,BancodePortugal In oneoftheseinjunctionproceedings,thejudgementwasdeliveredabsolvingBancodePortugal that entityandtheconsequentprohibitionfromconcludingdefinitivecontract. to adjudication of act the of suspension the requested chiefly measures precautionary These Star. During 2017, six injunction proceedings were filed, relating to the sale process of Novo Banco to Lone amount isnotsought. cash specified a of Portugal de Banco by payment as Portugal, de Banco for risk financial of type of theproceedings.However,cancellationdeliberationsinquestiondoesnotcarryany developments final the until back put be must circumstances these of reassessment adequate precludes anypredictionofthecourts’ decisions, or even the decisions’ tendency.Therefore an The factthattheseproceedingshavenolegalprecedentandinvolveconsiderablecomplexity formal judgementoronthesubstanceyet. The lawsuitsareattheinitialexchangeofinformationphase,withcourtshavingdeliveredno 2014, 15Septemberand29December2015. contesting ofthedeliberationsBoardDirectorsBancodePortugal22December Oak FinanceandtheGuardiansofNewZealandSuperannuationFund,whichrequest Pending attheAdministrativeCourt of theLisbonDistrictarelawsuitsbroughtbyGoldmanSachs, is noevidencetorefuteourbeliefthatsuccessmoreprobablethanfailure. to dateintheselegalproceedings,andtheproceduralinformationavailableatpresent,there tendency of the decisions to be delivered by the Courts. However, given the favourable developments Resolution measureappliedto Banif–BancoInternacionaldoFunchal,S.A.(Banif,A.) v) iv) of theNewZealandSuperannuationFundandothers) Other requestsrelatedtotheresolutionmeasureappliedBES Oak Finance (including the proceedings filed by Goldman Sachs, Oak Finance, Guardians

129 Notes on the Financial Statements 130 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 is distinct, naturally, from others that may arise from any civil responsibility lawsuits against Banco is distinct,naturally,fromothers thatmayarisefromanycivilresponsibilitylawsuitsagainst Banco measure subject to the judicial decision. However, this compensation resolution the of continuation measure should of theresolution continue, then it shall be the Resolution Fund that supports any compensation payable for the the effects reasons, stability financial and interest public for that, deems authority resolution the and decision final a by cancelled be to were measure to theresolutionmeasureanditsimplementation.On groundsofconsistency,ifaresolution support financial provides that entity the is Fund Resolution the that is version, current the in behind the resolution regime, both in the version prior to publication of Law No 23-A/2015 and the applicationofresolutionmeasuresadoptedby the resolutionauthority.Therationale to assistance financial provide to RGICSF, of 153-C Article under is, which consideration, into In order to analyse the risk of these lawsuits, the purpose of the Resolution Fund must be taken success ismoreprobablethanfailure. and proceduralinformationavailableatpresent,thereisnoevidencetorefuteourbeliefthat and thecalculationofpossiblesumssentencedresultingtherefrom.However,givenlegal proceedings, impede the determination of the risks involved for Banco de Portugal in this phase These factors,combinedwiththegeneralproceduraldynamicandvicissitudesoflegal complexity precludes any predictionofthe courts’ decisions, or even the decisions’ tendency. The fact that these proceedings have no legal precedent and involve considerable legal awaiting confirmationasafinaldecision. is judgement This unfounded. question in request injunction the finding Portugal, de Banco of estate assets of Oitante. Furthermore in these proceedings, in 2018, a judgement ruled in favour MANAGEMENT, UNIP.,Lda.ofexclusivecontroloverthebusinessmanagingcreditandreal relation toonecase,inwhichsuspensionisrequestedoftheacquisitionbyPROTEUSASSET Finally, injunctionproceedingsarependingattheAdministrativeandFiscalCourtofSintrain information phase. damages arisingfrominvestmentsmadeinBanif,S.A..Thesuitsarestilltheexchangeof de Portugal and/or the Resolution Fund to pay compensation for physical and non-physical There are also 17 civil suits pending at the Lisbon District Court, requesting a sentence for Banco Recently, adecisionwasdeliveredtojoinfourofthependingproceedings. Portugal). initial exchangeofinformationphase(initialpetitionandcorrespondingobjectionbyBancode Currently thereare15administrativelawsuitscontestingthesedeliberations,whichallinthe end of2017. the at end to due was and instrument, financial the of subscription the with started responsibility Banif, S. A., since, under Article 324(2) of the Securities Code, the two-year time limit for contractual At theendof2017,therewasanincreaseinlawsuitsrelatedtoresolutionmeasureapplied deliberation of20December2015. S. A.”.Subsequently,Banif,A.wassoldtoBancoSantanderTotta,A.,inaccordancewiththe the saleofbusinessBANIF,withBancoPopularEspañol,S.A.,andSantanderTotta, to andforthepurposesofArticle145-E(2)(a)RGICSF”taking“thestepsrequiredtowards purse”. Theresolutionmeasureconsistedof“declaringthatBANIFisfailingorlikelytofail,according public the for costs fewer with system financial the of stability the safeguarding BANIF, by provided services financial essential the of continuity ensure to and depositors protect to solution only “the Banif –BancoInternacionaldoFunchal,S.A.(hereinafter“Banif,A.”),asitdeemedthatthiswas 146 ofRGICSF,on19and20December2015,BancodePortugalappliedaresolutionmeasureto to coverrisksforBancodePortugal whicharenotcoveredbyspecificprovisions. (see Section1.2(q)ofNote1), movementsofwhicharedecideduponbytheBoard Directors, In compliance with its Organic Law, Banco de Portugal has established a General risk provision at 31December2017. as progress in lawsuits the for recognised provision specific no is there therefore and Portugal, believes that the ruling on these lawsuits will not have an unfavourable outcome for Banco de firmly available, information the basis a as taking Portugal, de Banco of Directors of Board the the applicable legislation and the reasoned opinion of the internal and external legal counsel, given and above, summarised facts the on based However, risk. financial or legal associated any been deemedimpossibletousethecriterionofcase-lawprecedent intheprudentassessmentof generally favourable tendency for Banco de Portugal and the Resolution Fund – in this phase it has case-law precedent – although, those few precedents that have even so cropped up indicate a Lastly, as the lawsuits relating to the resolution measures do not draw upon a sizeable body of proceedings. years. Giventheirnatureandcomplexity,theymayresultinadditionalorcomplementarylegal above are in an initial procedural phase, and are thus expected to be conducted over several de Portugal’s needs in terms of legal representation in court. The majority of lawsuits described Legal ServicesDepartmentandthecontractingofexternallegalservices,torespondBanco has continued to warrant the additional allocation in 2017 of specialised internal resources in the The aforementionedincreaseinlitigation,comparedtothenumberoflegalproceedings2016, • success ismoreprobablethanfailure. and procedural information available at present, there is no evidence to refute our belief that However, giventhefavourabledevelopmentstodateintheselegalproceedings,and possible sumssentencedresultingtherefrom. the determinationofrisksinvolvedforBancodePortugalinthisphaseandcalculation combined with the general procedural dynamic and the vicissitudes of legal proceedings, impede precludes anypredictionofthecourts’decisions,orevendecisions’tendency.Thesefactors, fact thattheseproceedingshavenolegalprecedentandinvolveconsiderablecomplexity There is the possibility of financial risk imputable to Banco de Portugal in these proceedings. The exception bylispendensandabsolvedthedefendants. one thatdeemedtherewasnoneedtoadjudicateandtheotherwell-founded rendition of judgement is pending on two lawsuits and in two cases sentences were delivered, In mostofthelawsuits,exchangeinformationphasehascometoanend.Forexample, with BPP,S.A.. Portugal ortheDepositGuaranteeFundtopaycompensationforbalancesonaccountsopened There are24lawsuitspendingincourt,correspondingnamelytorequestssentenceBancode • available atpresent,webelievesuccesstobemoreprobablethanfailure. de Portugalonanyothergrounds,inrelationtowhich,giventhelegalandproceduralinformation Overall assessmentoftheBoardDirectorsBancodePortugal Winding upproceedingsofBancoPrivadoPortuguês,S.A.(BPP,A.) 131 Notes on the Financial Statements 132 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 NOTE 35• issued inPortuguese.Intheeventofdiscrepancies,Portugueseversionprevails. originally statements financial the of translation a are statements financial accompanying The NOTE 36• and Finance,onaproposaloftheBoardDirectors. remainder to the State, as dividends, or to other reserves, as approved by the Minister of State 10% tothelegalreserve,otherreservesbedecidedbyBoardofDirectorsand of the Organic Law of Banco de Portugal, the net profit for the year shall be distributed as follows: The PortugueseStateistheownerofBancodePortugal’sequity.InaccordancewithArticle53(2) these Funds’activity. Credit Guarantee Fund. The Management Committees are the bodies responsible for managing Committees oftheResolutionFund,DepositGuaranteeFundandMutualAgricultural Certain membersoftheBoardDirectorsBancodePortugalformpartManagement independent entitiesincomparableoperations. conducted undertermsorconditionsessentiallysimilartothosethatwould normally apply to All transactions between Banco de Portugal and the related parties are contracted, accepted and parties was97.85%inSGFPBPand100%Valora,S.A.(Note10). On 31December2017,theparticipatinginterestofBancodePortugalinequityitsrelated RELATED PARTIES NOTE ADDEDFORTRANSLATION 4 ExternalAuditors’ Report

- - - sheet We haveaudited the Opinion REPORTON THE including anet for the The The matters Other opinion. We believe theaudit that evidence we haveobtained is sufficient appropriate and toprovide basis a for our with theOrdem dos Revisores Oficiais code de Contas of ethics deBanco Portugal “ Institute of Statutory ethicaland We conducted our audit in accordance with International Standards onAuditing (ISA Basi Portugal year then ended in accordance with the financial position ourIn opinion, theaccompanying financial statements the significant accounting Management is responsible for Responsibilities accounts examined by another audit firm equity reserves or or reserves

Auditor’s r

( Free t bala s statements that are free from material designing and maintaining appropriatean internal control system to enable preparatio the the preparation offinancial statements that position and Banco deBanco Portugal at at as for for the year then ended year

, which are described in Note 1of the accompanying notes tothe financial statements nce sheet as 31 at December 2016

. The financial statements ofBanco d

ranslation report ofa originallyissued in language: Portuguese ofdoubt Incase thePortuguese opinion esponsibilities the for standards 31 then ended emphasis ofmatter paragraphs. December 2017 December profit of

financial performance in accordance

of of AUDIT OF

in accordance in with n ofthe of m accompanying financial statements of and guidelines and issued as by Ordem dos Revisores (the OficiaisContas de Auditors ; anagement for the financial , and the accompanying no

Banco de Portugal as 656,484 t.euros policies activity (Amounts expressed(Amounts in thousands of Euro ) THE : are presented in order to to order in presented are (showing .

and theand respective report, audit dated 24 march 2017, Our responsibilities those under standards are further described in the a .

udit ofthe financial

FINANCIAL STATEMENTS report report version will prevail always the accounting principles included in the we law and ) a profit and loss, theand profit of 2017 total and , and

misstatement, whether at at e Portugal for the year ended in 31 December 2016 were AUDIT of and and 2017 31 December give true a a the profit loss and account and in accordance with tes to 152,964,831 REPORT with have fulfilled other statements

statements give a give comply with the financial statements the principles included in of the Chart Accounts of Banco de Portugal account account true and – nd

t.euros

Note 36 fair view of ” section

due to fraud or error; fraud to due and the requirements applicable l applicable – fair t.euros) and equityand of ) of its financial performance the Chart ofAccounts the Chart ofBanco de

ethical requirements in accordance the view below Banco de Portugal statement ofchanges in equity , which comprise th , in all material respects,

. We are independent from the preparation offinancial the statement the and regulat and aws , including s) further and 1,862,858 t.euros on did notcontain any

publication of asummary . ’s of

Portuguese financial i e balance o changes in technical ns for the ;

of , of 133 External Auditors’ Report 134 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 ur rsosiiit responsibilities Auditor’s ro our oiio ur rsosiiit is osistt it

stiis trouout tudit rt o As udit i ord it As sttts rso ris ro rud or rror r d osidrd tri i idiidu or i trt t oud ------odutd i ord it A

tri issttts r tt is ir rsttio disosurs tr d t ii sttts rrs ut t or rsttio strutur ott d ot ii sttts iudi t oi or rort o odi our oiio ur ousios r sd ot udit id otidt dt oour uto rort tot rtd i disosurs tii sttts or i sudisosurs r idut to oud tt tri urtit ists r ruir oditios st tt siiit dout o sd ot udit id otid tr tri urtit ists rtd to ts or conclude on the appropriateness of management’s use of the going concern basis of accounting and, stits rtd d disosurs d t tiss o r rorittt i tirusts utot or t uros orssi oiio ot o ousio orr ittio oissios isrrsttios or t orrid oitr otro issttt rsuti ro rud is ir or t o rsuti ro rror rud s io is suiit rorit d toroid sis or rror ror dsi d udit rodurs rsosi totos riss oti d udit id tt i t dotio oouti otro tt idti duri our udit tiid o t udit d siiit udit idis iudi s ouit it tos rd it or rrdi o otr ttrs t d so ttrs tt st siiit dout ssssi dti ssss td riss o tri issttt o t ii sttts tr du to rud ut t roritss o outi oiis usd t d rsoss o outi ti udrstdi o itr otro rt totudit i ordr todsi udit rodurs

so is ssur i ossurutis td to iu t ooi disios o usrs t o t sis o ts ii Banco de Portugal’s t ii sttts is tooti so

r utur or ts oditios us o do ortu iuds t riitio

for the auditthe financial of statements tr rso ssur

oiis d d d

i s dtt tri issttt it ists issttts iit to du to rud or rror d so ’s internal control;

riis rorit i t irusts d

otiu s its out

tt t tt o d ortu or our oiio ris ootdtti tri ris rossio udt o tr t ii sttts

iitto otiu s oi or iortio

oi or o do ortu t t udri trstios ts d i

to otid i t d to dr tttio our i issu ’s ability to continue going as a concern. ot urt tt udit

d d iiit diiis i itr n auditor’s disosi to s to otiu s iti rossio tiit rort iuds tt s o r r r o r s s i t t i

rort rort auditor’s o

isbo material misstatements. financial statements n language version prevails.) version language the procedures, internal S.A. SROC (Thisreport isa translation of a report originally issued in Portuguese. Thereforeaccording to Deloitte & Associados, P epresented eloitte ssociados, .. t is t

te te our opinion n, n, arch tiit tiit by oo arlos enriues omes erreira that that report

and the A AA

information included in theactiity report of , o o haing regard to

report isnot to be signed. In the event of discrepancies, thePortuguese our noledge , of

Banco de Banco Portugal

is consistent , e hae notidentified any ith t he audited 135 Notes on the Financial Statements 136 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 5 ReportandOpinion of theBoard ofAuditors disclosure process and on the evaluation of the internal control systems’ effectiveness. practices adopted, focusing in particular on the financial information preparation and The BoardofAuditors also monitoredcompliancewiththeaccounting policies and situations deemedtohavesignificantrisk,whenevernecessary orconvenient. and requestsforadditionalinformationonsubjectsbeing monitored,inparticular, responsible fororinvolvedintheperformanceofsaid activitiesand(ii)meetings Audit Departmentandotherdepartmentsstructural unitsinBancodePortugal, produced bytheAccountingDepartment,RiskManagement Department,the focused on(i)reviewanddiscussionofanumberreportsinformation financial (ii) compliance, and reporting, (iii)externalauditing,and(iv)internalauditing.Monitoringwasessentially control internal management, risk (i) by performed The BoardofAuditorsmonitoredwithparticularattentionthefunctionsandactivities which fallwithinitsremitundertheregulatoryframeworkinforce. issues and(iii)theregularmonitoringofBancodePortugal’sfunctionsactivities, review of the minutes of the Executive Committee for administrative and staff-related participation, withoutvotingrights,inthemeetingsofBoardDirectors,(ii) powers, monitoredtheactivityofBancodePortugalthrough(i)itsmembers’ During thecourseof2017,BoardAuditors,inuseabove-mentioned Directors. functions, issues its opinion on the Financial Statements presented by the Board of the observanceoflawsandregulationsapplicabletheretoand,amongother de Portugal, the Board of Auditors monitors the business of Banco de Portugal and In accordancewiththeprovisionslaiddowninArticle43ofOrganicLawBanco Board ofAuditors Report andOpinionoftheBoardAuditors 2017 distribution ofprofitmentionedabove. the 2017FinancialStatementsofBancodePortugal,nor totheproposalfor In light of the above, the Board of Auditors raises no objection to the approval of of Financethefollowingproposalfordistributionprofit : with Article 53 (2) of the Organic Law of Banco de Portugal, will submit to the Minister for 2017, to the amount of €656,484,195.98. The Board of Directors, in accordance profit of distribution the for proposal the analysed Auditors of Board the addition, In as deemedprudent. materialising duringtheyear,involvingassessmentofshortandmedium-termrisks, foreign currencylossesand(iii)thereductioningeneralriskprovisionscoveringrisks policy purposes, (ii) the negative results in financial assets and positions and unrealised including (i) the significant strengthening of the securities portfolios held for monetary factors, relevant various of impact the reflect year the for Profit in developments The provisions andotherownfundsofBancodePortugal. not directly related with monetary policy, as well as their coverage by general risk monetary policypurposesandtheportfoliosofeuroassetsforeignreserves for held portfolios securities the in developing risks financial to attention particular In themonitoringofannualbalancesheetdevelopments,BoardAuditorspaid without anyqualificationoremphasisofmatter. Associados – Sociedade de Revisores Oficiais de Contas S. A., which issued its opinion discussed the conclusions of the external audit work carried out by Deloitte & in the – approvedinthemeetingofBoardDirectorsheldon13March2018and contained 2017 December 31 information on ended year fiscal financial the for Accounts the and Report Management analysed also Auditors of Board The – – – – – – Dividends totheState 10% tootherreserves 10% tothelegalreserve ...... €525,187,356.78 €65,648,419.60 €65,648,419.60 137 Board of Auditors 138 Banco de Portugal • Annual Report • Activities and Financial Statements 2017 Lisbon, 20March2018 the entirestaffofBancodePortugalitsappreciationfortheircooperation. The BoardofAuditorswishestoexpresstheGovernor,Directorsand António GonçalvesMonteiro The BoardofAuditors João CostaPinto www.bportugal.pt