Banking Finance 2015 This paper examines three of the biggest Portuguese Commercial banks through 6 financial ratios during a three-year period: from 2011 to 2013.

Professor Kiki Kosmidou

30th January

Adriana Ravara

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1-TABLE OF CONTENTS

2 - INTRODUCTION ........................................................................................................................ 4

3 - INTRODUCTORY NOTE FOR THE EXPLANATION OF THE USED FINANCIAL RATIOS ................. 5

3.1 - Return on Assets (ROA) ..................................................................................................... 5

3.2 - Return on Equity (ROE) ..................................................................................................... 5

3.3 - Net Interest Margin ........................................................................................................... 5

3.4 - Loan-to-Deposit Ratio ....................................................................................................... 5

3.5 - Shareholders Equity Ratio ................................................................................................ 5

3.6 - Provisions-To-Total-Assets Ratio ....................................................................................... 6

4 - MILLENIUM BCP ....................................................................................................................... 7

4.1 - SINOPSIS OF THE HISTORY OF THE BANK .......................................................................... 7

4.2 - MILLENIUMS DATA TABLE ................................................................................................ 8

TABLE 1 Results for all ratios for the three year period for Millenium. ............................. 8

4.3 - TABLE OF ALL RATIOS RESULTS OF MILLENIUM .............................................................. 8

TABLE 2- Indicators for the three year period for Millenium................................................ 8

4.5 - MILLENIUMS RATIOS EVALUATION .................................................................................. 9

CHART 1 - ROE and ROA of BCP. ............................................................................................ 9

CHART 2 Net Interest Margin of BCP. ............................................................................... 10

CHART 3 -Equity-To-Total-Assets Ratio of BCP. .................................................................. 10

CHART 4- Provisions-To-Total -Assets ratio of BCP. ............................................................ 11

CHART 5 -Loan-to-Deposit-Ratio of BCP. ............................................................................ 12

4.6 - SUMMARY OF RESULTS ................................................................................................... 12

5 - BANCO PORTUGUS DE INVESTIMENTO ............................................................................... 13

5.1 - SINOPSIS OF THE HISTORY OF THE BANK ........................................................................ 13

5.2 - BPIS DATA TABLE ............................................................................................................ 14

TABLE 3 Results for all ratios for the three year period for BPI. ....................................... 14

5.3 - TABLE OF ALL RATIOS RESULTS OF BPI........................................................................... 14

TABLE 4 - Indicators for the three year period for BPI. ....................................................... 14

5.4 - BPIS RATIOS EVALUATION .............................................................................................. 15

CHART 6- ROA and ROA of BPI from 2011 to 1013. ............................................................ 15

CHART 7 Net Interest Margin of BPI. ................................................................................. 16

CHART 8- Equity-to-Total-Assets Ratio of BPI. ................................................................... 16

CHART 9 -Provisions-to-Total-Assets Ratio of BPI. .............................................................. 17

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CHART 10 Loan-To-Deposit Ratio from BPI. ...................................................................... 17

5.5 - SUMMARY OF RESULTS ................................................................................................... 18

6 - CAIXA GERAL DE DEPSITOS .................................................................................................. 19

6.1 - SINOPSIS OF THE HISTORY OF THE BANK ........................................................................ 19

6.2 - CGDS DATA TABLE .......................................................................................................... 20

TABLE 5- Indicators for the three year period for CGD. ...................................................... 20

6.3 - TABLE OF ALL RATIOS RESULTS OF BPI........................................................................... 20

TABLE 6 - Results for all ratios for the three-year period for CGD. ..................................... 20

6.4 - CGDS RATIOS EVALUATION ............................................................................................ 21

CHART 11 - ROE and ROE of CGD. ....................................................................................... 21

CHART 12 Net Interest Margin of CGD. ............................................................................ 22

CHART 13 - Shareholders Equity Ratio of CGD. .................................................................. 22

CHART 14 - Provisions-to-Total-Assets Ratio of CGD. ......................................................... 23

CHART 15 - Loan-to-Deposit Ratio of CGD. ........................................................................ 24

6.5 - SUMMARY OF RESULTS ................................................................................................... 24

7 - CONCLUSION .......................................................................................................................... 28

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2 INTRODUCTION

This paper aims to analyse the financial evolution of three banks of the same sector for

the past three years. For this purpose, three Portuguese commercial banks were

chosen: Banco Comercial Portugus, more commonly known as Millenium BCP, Banco

Portugus de Investimento (BPI) and Caixa Geral de Depsitos (CGD).

Millenium BCP is the biggest bank of the private sector in the country, whereas BPI is

the third one. As for CGD, it is the only Government owned bank of the country.

Before analysing, it should be taken into account that after the crisis of 2008, the

banking sector in almost all countries was the most prejudiced. Portuguese banks were

no exception to this shock. This paper analyses the three-year period from 2011 to

2013 and therefore the main question that holds is the following: Were these banks

capable of coping with the damages caused by the crisis, or are they slowly recovering,

or if, on the contrary, they are dragging themselves down in these following years, and

if there is a tendency of this persistence.

It is very important to bear in mind that all banks borrow money from each other that

is why that if one declares bankruptcy, it will almost inevitably drag down many others.

Since nowadays the means of technology are so widely spread, these shocks become

ever more international. Moreover, Portuguese banks were a target of negative

speculation attacks of rating agencies such as Moodys or Standard and Poors, where

they classified some banks as junk, which aggravated the untrusting environment in

this financial market. In order to come around this problem, the Government created a

law that it will loan money to banks if they need to, to a lower rate than the market,

with the limit of 12000 millions. This gave more credibility to the ability of self-

financing for banks, so the speculation attacks were over.

This paper will provide a small caption of each banks history until the present, as well

as their collected data, illustrated with tables and charts s for each measurement.

Furthermore, with the intention of making the paper understandable for the average

reader, before presenting all the ratios and individual conclusions, there is an

introductory note with all the basic knowledge about the ratios used in this paper.

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3 - INTRODUCTORY NOTE FOR THE EXPLANATION OF

THE USED FINANCIAL RATIOS

3.1 - Return on Assets (ROA)

Net profit after tax/Total assets.

This ratio provides a percentage of the returns generated from the assets financed by

the bank.

3.2 - Return on Equity (ROE)

Net profit after/Shareholders equity.

This ratio allows investors to evaluate their return on their investments

3.3 - Net Interest Margin

(Interest paid by the bank interest earned by the bank)/Loans to the clients

It measures the profitability of the bank in its main activity: borrowing money to its

clients.

If the non-performing assets are high, their NIM will go down as the interest earning

assets are that much reduced by non-performing assets.

3.4 - Loan-to-Deposit Ratio

Loans/Deposits

This ratio expresses the extent up to which the bank has lent its deposits. If the value