The Pulse Report from US consulting firm Alvarez & Marsal (A&M), for the last year 2023, concludes that bank profitability by return on equity (ROE) increased to 15.08%, up 62.5% from the same period in 2022. Portuguese banks have achieved the double-digit profitability target, remaining above the European average of 10.9%. The cost of risk has increased, situating itself at 35 basis points when compared to FY 2022, and the NPL (Non-Performing Loan) ratio, which decreased to 59 bps, still stands above the European average (1.8%).
Solvency levels in the sector increased to 16.9%, primarily due to a decrease of the problem loans. In comparative terms, European banks do have lower solvency levels at around 15.7%.
A&M's analysis shows that net interest margin (NIM) increased compared with last year to 2.38% due to hike rates. As of mid-2022, the EURIBOR exceeded its negative range standing above 3.0%. The sector's Operating Income (OI) improved to 3.1%.
The sector's efficiency improved 16.5 bps compared with the previous year, standing at 31.6%, awaiting future inflationary costs pressures.
A&M observed a higher productivity per branch of four banks. Caixa Geral de Depósitos has the highest productivity gain in terms of turnover per branch. During 2023, the NPL ratio has been reduced across most to 2.59%, due to a decrease in non-performing loans, which were reduced by 102 bps compared to last year. Coverage Ratio remains stable above 100%. Compared with the European average, non-performing loans (NPL) remain high. The entities with the highest level of NPLs are Novo Banco and Crédito Agrícola.
Alvarez & Marsal's ranking for the large banks is headed by Caixa Geral de Depósitos, followed by Crédito Agrícola and Novobanco.
Additional topics included in this edition of The Banking Pulse:
The first topic is a summary of the profitability and productivity of Portuguese banks:
- In terms of clients, Santander and Novobanco show the strongest profitability ratios.
- Caixa Geral de Depósitos and BCP show the highest productivity per branch.
Secondly, A&M has developed an analysis of Portuguese banks and major European countries on held-to-maturity (HTM) portfolios and deposit quality. Crédito Agrícola, Banco Montepio and Novo Banco have more than 25.0% term deposits (HTM) on deposits, above the EU average of 15.8% In terms of customer deposits, Millennium BCP and Novo Banco have the largest share of non-retail deposits, at 30% and 29%, respectively. 26.8% of customer deposits in the Portuguese banking sector are non-retail which is below the EU average of 35.2%.
In the European landscape, France has the largest share of non-retail deposits over total customer deposits with 39.6 per cent. HTM Debt Securities in Spain is 5 bps above the EU average. Italy has the largest proportion of HTM Debt Securities over Total Customer Deposits at 22.1%.
In term of Total Assets, Caixa Geral de Depósitos remains in first place with an amount of 89 bn, followed by BCP with 63 bn, and Santander with 55 bn. The lasts places belong to Crédito Agrícola with 25 bn, and Banco Montepio with 18 bn.
A&M "Pulse Report of the Portuguese banking sector 4Q2023"
The Pulse Report of Portuguese Bank analyses the evolution of the seven largest Portuguese banks in terms of growth and liquidity, efficiency, risk, profitability, and solvency throughout 2023, highlighting the main performance indicators of the sector and scoring them according to the KPIs related to each area of analysis.
Additionally, the report presents a summary of profitability, productivity, and efficiency ratios. Following the events of the last few months, we have also included an analysis of Portuguese banks and the main European countries on held-to-maturity (HTM) portfolios and deposit quality.
The aim of the Pulse Report is to help the banking industry and board members stay abreast of industry trends. All data used in the report was obtained from public sources. The seven largest banks in Portugal under analysis are: Caixa Geral de Depósitos, Millennium BCP, Santander, Novo Banco, Banco BPI, Crédito Agrícola, Banco Montepio).
Originally published on 13 May 2024
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