Banco de Portugal. Annual Report. Report and Financial Statements. Lisboa 2003

Transcrição

1 Banco de Portugal Annual Report Report and Financial Statements 2002 Lisboa 2003

2 BANCO DE PORTUGAL Economic and Research Department Control and Accounting Department Translated by International Relations Department Information and Documentation Unit Rua do Comércio, LISBOA Distribution Administrative Services Department Documentation and Library Unit Av. Almirante Reis, Lisboa Printed by Tipografia Peres, S.A. Number of copies 1950 Legal Deposit no. 4746/84 ISSN

3 Management of the Bank Governor Vítor Manuel Ribeiro Constâncio Board of Directors Governor Vítor Manuel Ribeiro Constâncio Vice-Governors António Manuel Martins Pereira Marta José Agostinho Martins de Matos Directors Herlânder dos Santos Estrela Manuel Ramos de Sousa Sebastião Vítor Manuel da Silva Rodrigues Pessoa

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5 Board of Auditors Chairman Emílio Rui da Veiga Peixoto Vilar Rui José da Conceição Nunes Modesto Teixeira Alves Official auditor José Vieira dos Reis Board of Consultants Vítor Manuel Ribeiro Constâncio António Manuel Martins Pereira Marta José Agostinho Martins de Matos António Manuel Pinto Barbosa Manuel Jacinto Nunes José da Silva Lopes José Alberto Vasconcelos Tavares Moreira Luís Miguel Couceiro Pizarro Beleza António José Fernandes de Sousa Valentim Xavier Pintado António Manuel Rebelo Quintal Emílio Rui da Veiga Peixoto Vilar Roberto de Sousa Rocha Amaral Miguel Ribeiro Cadilhe Ernâni Rodrigues Lopes Almerindo da Silva Marques João Maurício Fernandes Salgueiro Vasco Manuel Silva Pereira

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7 Heads of Departments, Regional Delegations, District Agencies and Delegation Abroad Office of the Governor and the Boards (GAB) Paulo Ernesto Carvalho Amorim Secretariat to the Board (SEC) Paulo Ernesto Carvalho Amorim Audit Department (DAU) José Cunha Nunes Pereira Control and Accounting Department (DCC) Vitor Manuel G. Pimenta Silva Treasury and Issue Department (DET) Luís A. Gonçalves Ambrósio Statistics Department (DDE) Orlando P. Caliço Economic Research Department (DEE) Maximiano Reis Pinheiro Human Resources Management and the Development Department (DRH) Manuel Pimentel Castelhano Market and Reserve Management Department (DMR) Rui Manuel F. Rodrigues Carvalho Organisation and Information Department (DOI) Paulino A. M. Magalhães Corrêa International Relations Department (DRI) Paulo Ernesto Carvalho Amorim Administrative Services Department (DSA) Henrique Möller Miranda Legal Services Department (DJU) José Simões Patrício Payment Systems Department (DPG) Eugénio Fernandes Gaspar Banking SUpervision Department (DSB) Carlos Eduardo Lemos Santos OPorto Branch Manuel Maia Marques

8 Regional Delegations Regional Delegation of the Azores Egberto T. Bettencourt Mendes Regional Delegation of Madeira Leonel Mário Pestana França District Agencies Braga Paulo César Gomes Melo Castelo Branco Carlos Pereira Mendes Coimbra António Albuquerque Évora Vítor Manuel Geraldes Ribeiro Faro Abel Pereira Correia Vila Real João Reis Cariano Viseu Manuel Carlos Ferreira Costa Bank Representative Abroad Angola Luís Pedro Rodrigues Saramago

9 Contents

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11 Contents CONTENTS Management of the Bank... Board of Auditors and Board of Consultants... Heads of Departments, Regional Delegations, District Agencies and Delegations Abroad.... III V VII PART I. ECONOMIC SITUATION ANALYSIS Introduction Chapter I. EURO AREA I.1. External environment of the euro area I.1.1. The world economy in I.1.2. United States I.1.3. Japan I.1.4. United Kingdom I.1.5. Other economies Box I.1.1. The increased uncertainty in Box I.1.2. Financing conditions and debt vulnerabilities in Latin America I.2. Economic developments in the euro area I.2.1. Economic activity and prices I Economic activity and the labour market I Prices and costs I.2.2. Fiscal policy I.2.3. Monetary policy and monetary conditions in the euro area Box I.2.1. Inflation differentials in the euro area Box I.2.2. Updated stability programmes Chapter II. PORTUGUESE ECONOMY II.1. Monetary conditions of the Portuguese economy II.1.1. Introduction II.1.2. Interest rates and exchange rates II.1.3. Deposits and deposit-like instruments of the non-financial private sector II.1.4. Credit and indebtedness of the non-financial private sector II.1.5 Developments in the monetary survey II.2 Fiscal policy II.2.1 Introduction II.2.2 Current revenue II.2.3 Current expenditure II.2.4 Financial flows with the European Union II.2.5 Revenue and capital expenditure II.2.6. Public debt Box II.2.1. Temporary effects on the general government deficit in Portugal Box II.2.2. Fiscal prospects for Banco de Portugal / 2002 Annual Report XI

12 Contents II.3. Expenditure and output II.3.1. Overview II.3.2. Expenditure II Private consumption II Government consumption II Gross capital formation II Exports and imports II.3.3. Output II.4. Employment and wages II.4.1. Overview II.4.2. Participation rate II.4.3. Employment developments II.4.4. Unemployment II.4.5. Wages Box II.4.1. The wage bargaining system and the role of the wage cushion II.5. Prices II.5.1. Introduction II.5.2. Intra-annual inflation developments II.5.3 Inflation differential with the euro area II.5.4 Prices of goods and services Box II.5.1. Consumption structure and inflation in Portugal II.6. Balance of payments II.6.1. Overview II.6.2. Current account and capital account II.6.3. Financial account II.6.4. International investment position II.7. Financial markets II.7.1. Introduction II.7.2. Capital market analysis II Debt market II Stock market II Primary market II Secondary market II.7.3. Mutual funds II.7.4. Derivatives market II.8. Banking system II.8.1. Overview II.8.2. Market structure II.8.3. Banking activity II Credit market II Credit to households II Credit to non-financial corporations II Delinquency rates and credit provisioning II Securities portfolio II International exposure II Resources II 8.4. Return II.8.5. Solvency XII Banco de Portugal / 2002 Annual Report

13 Contents Box II.8.1. Information used in the analysis of the Portuguese banking system II.9 Financing of the economy II.9.1 Introduction II.9.2 Domestic sectors II Households II Non-financial corporations II General government II Financial sector II.9.3 External sector PART II. REPORT AND FINANCIAL STATEMENTS Chapter III. ACTIVITIES OF THE BANK III.1. Introduction of the euro and currency issue III.1.1. Introduction of the euro: developments III.1.2. Issue and circulation of banknotes III.1.3. Metal coins III.2. Statistical information III.3. Analysis and research III.4. Activity of the bank within the framework of the ESCB III.4.1. Implementation of the single monetary policy III.4.2. Management of the ECB foreign reserve assets III.5. Financial activities III.5.1. Management of the Banco de Portugal s own assets III.5.2. Financial relations with the State III.5.3 Special fund for the reconstruction of Chiado III.6. Payment systems III.6.1. SPGT Real-time gross settlement system/target system III.6.2. Interbank clearing system SICOI III.6.3. Regulation and control of means of payment III.7. Supervision of credit institutions and financial companies III.7.1. Overview III.7.2. Regulatory framework governing the activities of institutions and of the supervisory functions III.7.3. Supervisory activities III Developments in the universe of institutions III Monitoring of institutions and financial groups III.7.4. Consultancy, research and information management activities III.7.5. Claims and breaches of regulations III.7.6. Deposit guarantee fund III.7.7. Co-operation with other supervisory authorities and international activity III.8. Exchange authority III.9. International relations III.10. Internal organisation and management III Human resources III Pension funds III Organisation and information technology III Information and documentation III Legal services III Internal audit Banco de Portugal / 2002 Annual Report XIII

14 Contents III External premises Chapter IV. FINANCIAL STATEMENTS IV.1. Presentation and proposal for the distribution of results IV.2. Financial statements IV.3. Notes on the financial statements Bases of presentation and main accounting policies Bases of presentation Synopsis of the main accounting policies Gold and gold receivables Lending and deposit operations with the International Monetary Fund Balances with banks and security investments, external loans and other external assets denominated in foreign currency Balances with banks and security investments, external loans and other external assets denominated in euro Lending to euro area credit institutions related to monetary policy operations denominated in euro Intra-Eurosystem claims and liabilities Tangible and intangible fixed assets Other financial assets Balance-sheet variations from of-balance-sheet instruments Accruals and prepaid expenses Sundry Bank notes in circulation Liabilities to euro area credit institutions Debt certificates issued Liabilities to other euro area residents denominated in euro Liabilities to non-euro area residents denominated in euro Liabilities to euro area and non-euro area residents denominated in foreign currency Accruals and income collected in advance Sundry Sundry Revaluation accounts Capital and reserves Net interest income Realised gains/losses arising from financial operations Write-downs on financial assets and positions Income from equity shares and participating interest Net result of pooling of monetary income Other income Staff costs Income tax Off-balance-sheet instruments Retirement pensions IV.4. External auditor s report IV.5. Report and opinion of the board of auditors XIV Banco de Portugal / 2002 Annual Report

15 Tables TABLES Part I ECONOMIC SITUATION ANALYSIS Introduction 1A Euro Area Main economic indicators, B Portugal Main economic indicators, Chapter I. EURO AREA I.1. External environment of the euro area I.1.1. Gross domestic product and inflation I.1.2. Stock market indices I.1.3. Overall stock indices, by sectors I.1.4. US Main economic indicators I.1.5. US National accounts I.1.6. Japan National accounts I.1.7. Japan Main economic indicators I.1.8. Japan Non-performing loans and profits in the banking sector I.1.9. United Kingdom National accounts I United Kingdom Main economic indicators I Other economies Gross domestic product Box I.1.2.Financing conditions and debt vulnerabilities in Latin America [1.] Macroeconomic indicators [2.] Debt as a percentage of GDP [3.] Debt as a percentage of exports [4.] International reserves and debt repayment capacity [5.] Indexation or denomination of the public debt in I.2. Economic developments in the euro area I.2.1. Euro area Economic activity indicators I.2.2. Euro area countries GDP and unemployment I.2.3. Euro area HICP I.2.4. Euro area Other price and cost indicators I.2.5. Euro area countries HICP I.2.6. Euro area Fiscal position I.2.7. Euro area Fiscal balance and public debt I.2.8. Interest rates of the European Central Bank I.2.9. Euro area Interest rates and exchange rates in the Euro area I Euro area Components of M3 and credit Box I.2.2. Updated stability programmes [1.] Fiscal balance and public debt in the updated stability programmes [2.] Real GDP growth rates in the updated stability programmes Chapter II. PORTUGUESE ECONOMY II.1. Monetary conditions of the Portuguese economy II.1.1. Real interest rates II.1.2. Annual rates of change in bank loans to the resident non-financial private sector II.1.3. Monetary survey Banco de Portugal / 2002 Annual Report XV

16 Tables II.2. Fiscal policy II.2.1. Main fiscal indicators II.2.2. General government current revenue II.2.3. General government current expenditure II.2.4. Financial flows with the European Union II.2.5. General government capital revenue and expenditure II.2.6. General government deficit and change in the debt II.2.7. Break down of the change in the general government debt ratio II.2.8. General government debt By instruments II.2.9. General government debt By holding sectors Box II.2.2. Fiscal prospects for 2003 [1.] General government accounts II.3. Expenditure and output II.3.1. Gross domestic product Expenditure analysis Euro million and percentages II.3.2. Gross domestic product Expenditure analysis Year-on-year rate of change in volume II.3.3. Households disposable income II.3.4. Investment indicators II.3.5. Developments in imports by groups of products II.3.6. Goods exports by economic zones and countries of destination II.3.7. Developments in exports by groups of products II.3.8. Portuguese exports to the EU and EU imports by main groups of products Total excluding fuels and other goods II.3.9. Portuguese exports to the EU and EU imports by main groups of products Break down of total effect into market share effect and structure effect by product (1999, 2000, 2001 and 2002) II Gross domestic product II Industry II Rate of productive capacity utilisation II Construction Activity indicators II Services Activity indicators II.4. Employment and wages II.4.1. Summary of labour market indicators II.4.2. Population, employment and unemployment II.4.3. Breakdown of employment by employment status and by type of employment contract II.4.4. Employment, hours worked and average working hours II.4.5. Labour mobility II.4.6. Youth unemployment rate by level of education II.4.7. Breakdown of the stock of unemployed persons by reason for job seeking II.4.8. Inflows and outflows in unemployment II.4.9. Average pay in collective bargaining II National minimum wage II Portugal and euro area Labour costs in the whole economy Box II.4.1. The wage bargaining system and the role of the wage cushion [1.] Wage cushion [2.] Wage dispersion [3.] Correlation table Per worker [4.] Correlation table Per contract XVI Banco de Portugal / 2002 Annual Report

17 Tables II.5. Prices II.5.1. CPI Main categories and aggregates II.5.2. CPI Services Box II.5.1. Consumption structure and inflation in Portugal [1.] HICP Portugal Annual average rates of change II.6. Balance of payments II.6.1. Balance of payments II.6.2. Travel and tourism II.6.3. Financial account II.6.4. Portfolio investment II.6.5. International investment position II.7. Financial markets II.7.1. Volatility and correlation between stock market indices II.7.2. Total issuance of medium- and long-term securities net of redemptions in the internal and external markets II.7.3. Bond issuance in internal and external markets II.7.4. Bond issuance in the external market By institutional sectors II.7.5. Bond issuance in external markets By type of rate II.7.6. Stock issuance II.7.7. Turnover of shares II.7.8. Stock market capitalisation as a percentage of GDP II.7.9. Turnover of bonds II Composition of the portfolio of mutual funds and money market funds II Derivatives stock exchange II.8. Banking system II.8.1. Summary table II.8.2. Banking system structure II.8.3. Market share of the five major banking groups II.8.4. Market share of non domestic banks II.8.5. Balance sheet of the banking system II.8.6. Balance sheet II.8.7. Bank loans to the non-financial private sector II.8.8. International syndicated loans to the resident non-financial corporations in Portugal II.8.9. Aggregate exposures of the Portuguese banking system emerging markets II.8.10 Profit and loss account - On a consolidated basis Euro million II Profit and loss account - On a consolidated basis As a percentage of average assets II Implicit average rates of return of the main balance sheet item II Capital adequacy Box II.8.1. Information used in the analysis of the Portuguese banking system [1.] Data used in the analysis of the Portuguese banking system [2.] Comparison of developments in credit aggregates, resources from customers and credit and interest overdue in prudential reports and monetary and financial statistics II.9. Financing of the economy II.9.1A.Flow of funds in the Portuguese economy II.9.1B. Flow of funds in the Portuguese economy 2002 E II.9.2. Financial transactions of households II.9.3. Financial transactions of non-financial corporations II.9.4. General government financial transactions II.9.5. Financial transactions of the financial sector Banco de Portugal / 2002 Annual Report XVII

18 Tables II.9.6A.Financial transactions of the financial sector II.9.6B. Financial transactions of the financial sector 2002 E II.9.7. Financial transactions of the external sector PART II. REPORT AND FINANCIAL STATEMENTS Chapter III. Activities of the Bank Issue and circulation of bank notes Status of euro coins issued on 31 December Status of the withdrawal of coins denominated in escudos on 31 December Operations processed via SPGT Operations processed via SICOI Institutions registered as at 31 December Registrations in 2002 (New institutions) Closing down of institutions in Staff/development pattern Age groups/development pattern Seniority/development pattern Retirees and pensioners /development pattern Professional training/development pattern Financial standing Chapter IV. Financial statements Balance sheet of the Banco de Portugal as at 31 December Profit and loss account Note 1: Bases of presentation and main accounting policies Note 2: Gold and gold receivables Note 3: Lending and deposit operations with the International Monetary Fund Note 4: Balances with banks and security investments, external loans and other external assets denominated in foreign currency Note 5: Balances with banks and security investments, external loans and other external assets denominated in euro Note 8: Tangible and intangible fixed assets Note 9: Other financial assets Note 10: Balance-sheet variations from off-balance-sheet instruments Note 11: Accruals and prepaid expenses Note 12: Sundry Note 13: Bank notes in circulation Note 19: Accruals and income collected in advance Note 20: Sundry Note 21: Provisions Note 22: Revaluation accounts Note 23: Capital and reserves Note 24: Net interest income Note 25: Realised gains/losses arising from financial operations Note 26: Write-downs on financial assets and positions Note 29: Other income Note 30: Staff costs Note 32: Off-balance-sheet instruments Note 33: Retirement pensions XVIII Banco de Portugal / 2002 Annual Report

19 Charts CHARTS PART I. ECONOMIC SITUATION ANALYSIS Chapter I. EURO AREA I.1. External environment of the euro area I.1.1. World gross domestic product and trade I.1.2. International commodity prices I.1.3. G7 Gross domestic product and stock market I.1.4. Stock indices I.1.5. Stock markets I year government bond yields I.1.7. Rating changes World I.1.8. Gross issuance of non-financial sector bonds for the euro area and the US I.1.9. US dollar exchange rates I Official interest rates I Change in cyclically adjusted general government primary balance between 2000 and I.1.12 US Gross domestic product Private consumption Non-residential private GFCF I.1.13 US Private consumption, disposable income and saving Change in household net wealth and gains in shares and real estate I.1.14 US Credit to households Interest rate on housing mortgage credit I US Consumer and business confidence I US Private GFCF I US capacity utilisation in manufacturing I US Borrowing requirements/financing capacity by sector I US Employment and unemployment rate I US productivity per hour worked I Japan Gross domestic product I Japan Private consumption, disposable income and saving I Japan Exports of goods (volume) I Japan Labour market I Japan Consumer prices I United Kingdom Private consumption, disposable income and saving Housing prices and and mortgage credit I.1.27 United Kingdom Consumer prices Box I.1.1. The increased uncertainty in 2002 [1.] Implied volatilities in the main stock market indices [2.] Historical volatilities of the main stock market indices [3.] Implied volatility in long-term bond prices [4.] Euro area Differentials between private debt bond yields and government bond yields [5.] US Differentials between private debt bond yields and government bond yields [6.] Euro area Consumer confidence [7.] Euro area Consumer assessment of the price trend and the HICP Banco de Portugal / 2002 Annual Report XIX

20 Charts Box I.1.2. Financing conditions and debt vulnerabilities in Latin America [1.] Yield spreads between sovereign debt securities in US dollars and US treasury bons [2.] Change in the yield spreads of sovereign debt securities in US dollars since 2 January [3.] Exchange rates against the US dollar [4.] Net flows of private capital to emerging market economies [5.] Yield spreads between sovereign debt securities in US dollars and US treasury bonds and external debt as a percentage of exports in I.2. Economic developments in the euro area I.2.1. Euro area GDP, private consumption and GFCF I.2.2. Euro area GDP, domestic demand and exports I.2.3. Euro area Revisions of 2002 forecasts by international organizations I.2.4 Euro area Private consumption and stock prices Consumer expectations about the overall economic situation and the labour market I.2.5. Euro area GFCF, entrepreneurs expectations and profit margins I.2.6. Euro area Exports of goods I.2.7. Euro area Market share of exports of goods I.2.8. Euro area Annual growth of employment and activity ( ) I.2.9. Euro area Unemployment rate and output gap I Euro area Harmonised index of consumer prices I Euro area Aggregates contributions to the year-on-year rate of change of the HICP I Euro area Energy prices I Euro area Consumer prices and output gap I Euro area Unit labour costs I Euro area countries Highest and lowest changes in the national HICP I Euro area Developments in inflation projections of the Eurosystem I Euro area Differential between the three-month Euribor implied in futures contracts with delivery dates in December 2002 and the respective spot value I Euro area Bank interest rates Deposit rates Bank interest rates Lending rates Box I.2.1. Inflation differentials in the Euro area [1.] Euro area countries Dispersion of the year-on-year rate of change in the HICP [2.] Euro area countries Dispersion of the year-on-year rate of change in the HICP and main aggregates Total and total excluding food and energy Unprocessed food and energy Processed food, non-energy industrial goods and services [3.] Euro area Contributions to the HICP variance Chapter II. PORTUGUESE ECONOMY II.1. Monetary conditions of the Portuguese economy II.1.1. Three-month money market interest rates (nominal and real) II.1.2. Bank interest rates and money market interest rates II.1.3. Real bank interest rates II.1.4. Effective exchange rate index for Portugal II.1.5. Deposits of the non-financial private sector in the resident banking system II.1.6. Deposits of the non-financial private sector in the resident banking system II.1.7. Deposits of the non-financial private sector in the resident banking system and abroad XX Banco de Portugal / 2002 Annual Report

21 Charts II.1.8. Contributions to the growth rate of deposits and deposit-like instruments of the non-financial private sector and interest rate on deposits II.1.9. Annual rates of change in bank loans granted to the non financial private sector II Annual rates of change in bank loans granted to households II Household indebtedness and interest payments II Indebtedness and interest payments of non-financial corporations II Net position of the monetary sector II.2. Fiscal policy II.2.1. General government overall and primary balances Total revenue, primary expenditure and interest payments Overall and primary balance II.2.2. Change in the structure of general government current revenue II.2.3. Change in the structure of general government current expenditure II.2.4. Breakdown of the change in the general government debt ratio II.3. Expenditure and output II.3.1. Gross domestic product II.3.2. Contribution of expenditure components to GDP growth II.3.3. Coincident indicator of private consumption II.3.4. Portugal Consumer confidence indicator Euro area Consumer confidence indicator II.3.5. Consumer confidence indicator in Portugal Various questions II.3.6. Assessment of inventories in industry Assessment of inventories in retail and wholesale trade II.3.7. Assessment of activity in the construction and public works sector II.3.8. Rate of import penetration of goods and services excluding fuels II.3.9. Market share of the Portuguese exports of goods II Unit profit margin in the export sector II Activity coincident indicator II Manufacturing industry II Industrial confidence indicator II Trade confidence indicator II.4. Employment and wages II.4.1. Private GDP and private employment growth II.4.2. Prices and wages II.4.3. Contributions to the change in employment by employment status II.4.4. Contributions to the change in employment by sector II.4.5. Labour market quarterly flows II.4.6. Total unemployment and long-term unemployment II.4.7. Total registered and subsidised unemployment II.4.8. Unemployment rate by regions II.4.9. Productivity Whole economy II Unit labour costs Whole economy II Differential between real wages and productivity Whole economy II.5. Prices II.5.1. Consumer price index II.5.2 CPI Total excluding unprocessed food and energy II.5.3. CPI Trend measures II.5.4. Harmonised index of consumer prices Total and aggregates Total Total excluding energy Total excluding energy and unprocessed food Goods Banco de Portugal / 2002 Annual Report XXI

22 Charts Unprocessed food Processed food Energy industrial goods Non-energy industrial goods Services II.5.5. CPI Services II.5.6. CPI Main aggregates Goods and services Food and industrial goods Processed and unprocessed food Energy and non-energy industrial goods II.5.7. CPI and main aggregates II.5.8 CPI Unprocessed food II.5.9. CPI Energy industrial goods Box II.5.1. Consumption structure and inflation in Portugal [1.] HICP Services Average rate of change of 2001and II.6. Balance of payments II.6.1. Balance of payments breakdown II.6.2. Current account breakdown II.6.3. Financial account Balances II.6.4. Current account and goods account II.6.5. Change in the trade account breakdown II.6.6. Investment income II.6.7. Emigrants/immigrants remittances II.6.8. Financial account Balances II.6.9. Other investment Monetary financial institutions II Direct investment II.7. Financial markets II.7.1. Portuguese yield curve II.7.2. Patterns in government debt interest rates in Portugal and differential vis-à-vis Germany II.7.3. Differentials of 10-year government debt yield vis-à-vis Germany II.7.4. Stock indices II.7.5. Price earning ratios for the Portuguese, European and US markets II.7.6. Stock price index for the Portuguese market by sector of activity II.7.7. Trading in the secondary market of the Euronext Lisboa II.7.8. Stock market capitalisation II.7.9. Privatisation II Relative importance of mutual funds for the Euro area and Portugal II Volume of the portfolio of mutual funds and money market funds by type of financial instrument II Breakdown of net subscriptions of mutual funds and money market funds II Composition of the fund portfolio by destination of investment and type of instrument II Volume of the portfolio of pension funds by type of financial instruments II.8. Banking system II.8.1. Number of banks in the banking system II.8.2. Securitisation II.8.3. Bank loans to households II.8.4. Accessibility indicator and its components II.8.5. House prices II.8.6. Number of new housing credit contracts II.8.7. Credit overdue and economic activity II.8.8. Delinquency ratio in credit to customers and total prevision of credit II.8.9. Delinquency ratio in credit to resident customers XXII Banco de Portugal / 2002 Annual Report

23 Charts II Delinquency ratio in bank credit to households II Credit overdue net of provisions for credit overdue as a percentage of total credit net of provisions for credit overdue II Total credit provision of credit overdue II Securities and financial fixed assets of the Portuguese banking system II Ratio of credit (net of provisions) to resources from customers II Financing sources of the banking system II Financing sources of domestic banking groups II Financing sources of banking groups II Financing sources of domestic banking groups II International issues of bonds by subsidiaries abroad of Portuguese banking groups II Profitability ratios II Change in return on equity II Financial margins II Breakdown of the financial margin II Differentials between bank loans interest rates and money market interest rates II Differentials between bank loans interest rates and money market interest rates II Differentials between money market interest rates and average interest rates on deposits II Differentials between bank loans interest rates and money market interest rates II Differentials between interest rates on loans to households and money market interest rates II.8.29 Income from financial operations Breakdown II Composition of banking product II Ratio of administrative expenses to banking product II.9. Financing of the economy II.9.1. Financial position of the institutional sectors II.9.2. Economic growth, investment and saving II.9.3. Savings rate of the institutional sectors II.9.4. Saving, investment and net lending/borrowing II.9.5. Financial saving of households II.9.6. Investment of households Transactions II.9.7. Financial assets and liabilities of households Amounts outstanding II.9.8. Interest received and paid by households II.9.9. Saving, investment and borrowing requirements II Non-financial corporation financial saving II Non-financial corporation investments Transactions II Resources of non-financial corporations Transactions By instruments II Non-securitised loans to non-financial corporation Transactions By maturity. 216 II Non-securitised loans to non-financial corporation Transactions By origin II Financial assets and liabilities of non-financial corporations Amounts outstanding II Interest received and paid by non-financial corporations II General government financing structure Transactions Chapter III. Activities of the bank Withdrawal of metal coins denominated in escudos Banco de Portugal / 2002 Annual Report XXIII

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25 Part I Economic Situation Analysis

26 The data used in Part I Economic Situation Analysis correspond to the latest statistical information available at the time this Report was prepared, being therefore subject to revision.

27 Introduction

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29 Introduction INTRODUCTION Economic activity in Portugal slowed markedly in According to Banco de Portugal estimates, Gross Domestic Product (GDP) recorded a real growth of 0.4 per cent, which compares to 1.7 per cent in 2001 and 3.7 per cent in The slowdown in economic activity was particularly marked in intra-annual terms, with a negative year-on-year change in GDP in the second half of the year. The rebalancing of the growth pattern continued in 2002 with the weakening of domestic demand and the rise in the contribution of net exports to GDP growth. Domestic demand fell in real terms, contributing with -0.6 of a percentage point (p.p.) to output growth (1.6 p.p. in 2001), while net external demand contribution amounted to 1.0 p.p., after being virtually nil in the previous year (0.1 p.p.). As a result of the marked deceleration in economic activity in 2001 and 2002, labour market conditions in Portugal changed significantly over the course of The unemployment rate, in annual average terms, stood at 5.1 per cent, i.e. 1.0 p.p. above its 2001 level. In intra-annual terms, the rise was more pronounced, reaching 6.2 per cent in the fourth quarter of 2002, i.e. 2.0 p.p. higher than in the same quarter of Employment growth was close to zero in annual average terms (0.2 per cent), as a result of a negative change in the private sector offset by an increase in employment in the public sector, albeit less marked than in previous years. Compensation per employee for the whole economy, excluding State transfers to the civil servants pension system (Caixa Geral de Aposentações), increased by 4.9 per cent. This growth, although decelerating relative to 2001, continued to be very high and clearly above the figure for the euro area. It should be noted that most wage negotiations took place, as usual, early in the year, when the imminent deterioration in the evolution of employment and unemployment was yet to be fully perceived. Apparent labour productivity was virtually unchanged for the second consecutive year. As a result, the real growth of compensation per employee was for the sixth consecutive year higher than productivity growth. In December 2002, the year-on-year rate of change in the Consumer Price Index (CPI) stood at 4.0 per cent, following an upward trend initiated in the second quarter of the year. The annual average change in the CPI amounted to 3.6 per cent, i.e. 0.8 p.p. less than in the previous year. The evolution of consumer prices resulted from several factors with opposite effects. Key elements on the downside were the lower growth in unprocessed food prices, the reductions in import prices and the deceleration in nominal wages. Key elements on the upside were the conversion of prices in Portuguese escudos into euro, affecting CPI developments in the first quarter of the year, and, from June onwards, the impact on prices of the rise from 17 to 19 per cent in the standard value added tax (VAT) rate. In addition, there were extraordinarily high rises in the prices of some services. At the end of the year, the services component of the CPI was growing at rates close to 7 per cent, clearly above what might be attributed to the special factors mentioned above. Many services can more easily pass on wage increases to the consumer, having also taken advantage of limited competition to widen profit margins. In this way they tried, at least temporarily, to Banco de Portugal / 2002 Annual Report 5

30 Introduction counterbalance the deceleration in economic activity. By contrast, in the tradable goods sector, the profit margins partially (or fully, as regards some products) absorbed the rise in the standard VAT rate, and the export sector squeezed its profit margins. The inflation differential between Portugal and the euro area, as measured by the annual average change in the Harmonized Index of Consumer Prices (HICP), declined to 1.4 p.p. in 2002, 0.7 p.p. less than in the previous year. However, excluding unprocessed food and energy industrial goods the more volatile components a continued rise was recorded throughout the year, ranging from 1.6 p.p. in the first quarter to 2.4 p.p. in the fourth. In particular, reference should be made to the widening of the differential in service prices growth, which changed from 2.0 to 3.5 p.p. during the same period. The rebalancing in the growth pattern of the Portuguese economy, reinforced in 2002, was especially significant as it took place against an international background of moderate growth in Portugal s major trading partners, deteriorating economic prospects over the year and continued correction of prices on the main international stock markets. Towards the end of 2002, signs of economic weakening in most advanced economies became more evident, while at the same time the uncertainty was fuelled by mounting tensions over the Iraq crisis. In addition, the dollar fell on foreign exchange markets, in particular against the euro. Comparing end-year figures, the dollar depreciated by approximately 19 per cent against the euro. In the euro area, weak economic growth and the somewhat irregular pattern of inflation, the latter mainly reflecting the price performance of the more volatile components (unprocessed food and energy), conditioned the monetary policy decisions of the European Central Bank (ECB) and market expectations regarding developments in the official interest rates. From early 2002 until May, markets were anticipating a 50 to 75 basis points rise in the official interest rates, to take place up to December From May onwards, expectations regarding the magnitude of the rise in these official rates were successively revised downwards, in line with the change in the outlook for economic growth and the assessment of risks to price stability. From September onwards, the three-month Euribor, as implied in futures contracts, started to reflect expectations of a reduction in the official interest rates of around 25 basis points before the end of the year. In early December, following a 13-month period in which the official interest rates had remained unchanged in the euro area, the Governing Council of the ECB decided on a 50 basis points cut. The minimum rate on the main refinancing operations of the Eurosystem moved to 2.75 per cent, 2 p.p. below the level prevailing at end Reflecting market expectations, money market interest rates followed a slightly upward trend until May 2002, which was later reversed. In December 2002, the three-month Euribor stood at 2.9 per cent, in monthly average terms, which compares to 3.3 per cent in December 2001 and the year maximum of 3.5 per cent recorded in May. The relative stability of the three-month and six-month euro area money market interest rates was reflected in the pattern of bank interest rates in Portugal. For most of 2002, these remained at levels very close to the December 2001 rates and below those recorded at end In the last quarter of 2002, however, these rates resumed a downward trend, in line with the evolution of money market rates. At the end of the year, bank interest rates in Portugal were close to historical lows. In December the rate on loans to corporations (with a maturity from 91 to 180 days) was 4.6 per cent, 0.6 p.p. lower than a year earlier, while the rate on new loan contracts to households over 5 years stood at 4.7 per cent, i.e. 0.4 p.p. lower than at end In real terms, these rates declined by 0.7 and 0.9 p.p., respectively, to 0.7 and 0.6 per cent (below the 1.3 and 0.8 per cent lows of 2001). In turn, the nominal rate on deposits with an agreed maturity of 181 days up to 1 year declined by 0.1 p.p., to 2.8 per cent, while the corresponding real rate, which has been negative since mid-2000, reached -1.2 per cent in December 2002 (-0.8 per cent a year earlier). The reduction in bank interest rates in 2001 and 2002, more evident when analysed in real terms, contributed to the easing of monetary conditions. However, this trend was countered 6 Banco de Portugal / 2002 Annual Report

31 Introduction by the evolution of the effective exchange rate index, which appreciated by 1.2 per cent between December 2001 and December In real terms, and as a result of a much higher increase in unit labour costs in Portugal than in its major trading partners, there was a more significant appreciation, amounting to 2.6 per cent in 2002 and to 5.9 per cent in cumulative terms since As regards Portuguese fiscal policy, it is important to recall that 2002 was marked by a significant revision of the deficit for In April, the new government, which took office after the early general election of March 2002, set up the Comissão para a Análise das Contas Públicas (CACP) (Committee for the Analysis of Public Accounts), chaired by Banco de Portugal, with the participation of the Ministry of Finance and the National Statistical Office (INE). Its mandate was to clarify publicly raised doubts about the figure of the general government balance for The Committee presented its findings to the government in July 2002, revising the deficit to 4.1 per cent of GDP (1), on a national accounts basis and in accordance with the rules laid down in the Excessive Deficit Procedure. This was far above the figure reported to the Eurostat in February 2002 (2.2 per cent (2) ). When the new estimate was included in the Excessive Deficit Procedure notification of September, the European Commission triggered the excessive deficit procedure against Portugal. On 5 November, the ECOFIN Council confirmed that an excessive fiscal deficit existed in Portugal, and issued a set of recommendations to the Portuguese authorities, with a view to putting an end to the existing situation as soon as possible. On 15 May, before the CACP findings were presented, the newly elected government presented a supplementary budget draft Law for 2002, revising the target for the general government deficit from 1.8 to 2.8 per cent of GDP. The deficit turned out to stand at 2.7 per cent of GDP, according to data available in the first (1) Revised to 4.2 per cent in the Excessive Deficit Procedure notification of February (2) This figure had been revised to 2.4 per cent of GDP at end-march by the previous government while still in office. months of Against a background of unfavourable macroeconomic conditions and former buoyant and strong growth of current primary expenditure, the 1.5 p.p. reduction in the deficit relative to 2001 was only possible through a set of measures intended to cut public expenditure (in particular as from the middle of the year), through the rise in the standard VAT rate, and above all through significant extraordinary measures. These extraordinary measures had an impact of around 1.5 p.p. on the overall general government balance, and included the settlement of tax arrears, the sale of the fixed telecommunications network, the sale of the rights for the reintroduction of toll charges on the Lisbon outer ring road (the CREL) and the sale of government property. Excluding these extraordinary effects, the figure for the deficit would be very close to the one recorded in However, given the significant deterioration in the macroeconomic situation, the cyclically adjusted primary balance corrected for temporary effects increased by 0.3 p.p. in 2002, thus interrupting the worsening trend of this indicator, which in the period recorded a cumulative reduction of 3 p.p. of GDP. It should however be mentioned that fiscal consolidation mainly relied on the performance of current revenue and capital balance, since current primary expenditure accelerated from 7.3 to 7.9 per cent in nominal terms, having increased by 1.0 p.p. of GDP when adjusted for cyclical effects. Such an assessment is confirmed by the trend in public consumption, whose nominal growth was far higher than that of GDP (7.4 per cent, only 0.5 p.p. below the figure for 2001). In volume terms, public consumption increased by 2.6 per cent, slowing 0.9 p.p. from General government intermediate consumption, one of the components of public consumption, recorded a nominal growth of 7.2 per cent in 2002, considerably higher than in the previous year (3.3 per cent). This was largely due to the strong increase in this expenditure by the regional and local government and autonomous funds and services sub-sectors (which grew by 17.6 and 6.0 per cent, respectively). Compensation of employees, which are the main component of public Banco de Portugal / 2002 Annual Report 7

32 Introduction consumption, increased by 6.5 per cent in 2002, 1.5 p.p. less than in This is clearly excessive given the country s fiscal situation. Some measures relative to the controls imposed on the hiring of civil servants and a sharp reduction in the impact of extraordinary revisions of careers were not able to counterbalance the rise in the number of civil servants recorded up to mid-2002 and the effects of a 2.75 per cent wage increase (3.71 per cent in 2001). In 2002 public consumption was the most dynamic component of domestic demand, given that private consumption recorded only a slightly positive growth rate and investment contracted significantly. Indeed, private consumption kept on a slowing path as in the past two years, with a 0.4 per cent increase in real terms. Consumption of durable goods fell sharply, in line with the usual pro-cyclical behaviour of this variable. The slowdown in private consumption was accompanied by a continued fall in consumer confidence, particularly marked in the second quarter of the year. This trend seems to have been related to public awareness of the seriousness of the fiscal imbalance, to vulnerabilities in the financial situation of households more subject to liquidity constraints, and to highly unfavourable prospects regarding unemployment, which turned out to be confirmed in the second half of the year. In a context of a more pronounced deceleration in private consumption than in disposable income, the savings rate increased for the third consecutive year, rising to 12.4 per cent of disposable income, 0.6 p.p. above the figure recorded in the previous year and approximately 3.5 p.p. higher than in 1999, when it reached its lowest value in this business cycle. Besides the precautionary motive, this rise also reflects the fact that households have to channel an increasing share of their income to the repayment of loans to the banking system, in particular those relating to house purchase. Turning to Gross Fixed Capital Formation (GFCF), this component decreased by 5.4 per cent in real terms, after a close to zero growth in 2001 (0.3 per cent). The decline in investment was generalised to all types of goods (machinery and equipment, construction and more markedly transport equipment) and to every institutional sector (mainly households and corporations, since the growth of general government GFCF, excluding the effect resulting from the sale of government property referred to above, was close to zero). The decline in corporate investment reflected the gloomy outlook for both domestic and external demands, the relatively low levels of production capacity utilisation, the strong investment accumulated over the last few years and, finally, the high levels of indebtedness reached. Notwithstanding the weakening of external demand for Portuguese goods and services, exports increased by 2.4 per cent in volume, around 0.5 p.p. more than in Available data on exports of goods point to a gain in market share of 1.4 per cent in volume in 2002, after 0.5 per cent in In the same direction goes the evidence on gains in the nominal market share in intra-community markets, which amounted to 2.8 per cent in 2002 and 2.1 per cent in In a context of relatively unfavourable developments in domestic unit labour costs, this outcome is probably associated with a squeeze of exporters profit margins. However, it should be noted that this pick-up in market shares is far from compensating for the cumulative loss of quota in the period from 1997 to 2000, which reached around 15 per cent. In turn, imports fell by 0.6 per cent in real terms, due to the contraction in domestic demand, which was more marked in the components with higher import content and more sensitive to the business cycle, and due to the moderate expansion of exports. External borrowing requirements of the Portuguese economy, as measured by the combined deficit of current and capital accounts, fell from 8.4 per cent of GDP in 2001 to 5.7 per cent in All the main resident institutional sectors households, corporations and the general government contributed to that fall. The improvement in the goods account deficit by 2.1 p.p. of GDP simultaneously reflected a volume effect and a gain in the terms of trade. The strong recovery in European Union public transfers led to a reduction in the deficit equivalent to 0.7 p.p. of GDP. The remaining components had contrasting developments: there was an increase in the services surplus (0.2 per cent 8 Banco de Portugal / 2002 Annual Report