Private banks’ profits will reach 3.3 billion in 2023, an increase of 74.2% compared to the previous year

In 2022, the seven largest Portuguese banks – CGD, BCP, Novobanco, Santander Totta, BPI, Crédito Agrícola and Banco Montepio – made profits of €2,761 million, but excluding Caixa Bank, which has not yet submitted its accounts for 2023, the six largest banks Private banks in 2022, their total profits amounted to 1,918 million euros. Now, this value is 74.2% less than the total profits of the same six banks in 2023, which amounted to 3,342.9 million euros.

Unsurprisingly, margin income, totaling €6,965.8 million across the six banks, justified the increase in profits.

The financial margin, which is part of the banking product, increased at a (simple) average rate of 73.4%, following the development of profits.

The largest financial margin growth was observed at Crédito Agrícola, Santander Portugal and Novobanco, where they increased by 103.8%, 91% and 82%, respectively. The increase amounted to about 70% at BPI, 31.4% at BCP, and 62.3% at Banco Montepio.

But the best indicator of bank gains is earnings per share, which is now around 16%, above the cost of capital. The latest information issued by the European Central Bank indicates that the cost of capital reached 13.2% at the end of the first half of the year, and the bank’s estimates indicate that it now ranges between 12 and 14%. Since interest rates have changed little since the first half of the year, the cost of capital will not change much compared to the first half of the year.

Banks make a lot of profits because they have invested a lot of capital in the activity, something that was recently defended by the President of the Portuguese Banking Association, Vitor Pinto, who highlighted that “banking, in the whole of 2022, invested about $36 billion, more “. More than any other single sector and nearly half of all large non-financial companies. Therefore, it is natural to offer greater profits,” in an article in “Público.”

Let's take a look at the profitability of each individual bank in 2023. Santander Totta tops the ranking in terms of ROE, achieving an ROE of 23.4%. BPI and Novobanco offer a return on tangible equity (ROTE) of 16% at BPI and at Novobanco 20.4%. But when you do the math around return on equity (earnings/equity), the average is around 17% for both. BCP's profitability is 16%.

Next, Crédito Agrícola achieved a return on equity of 13.10%, and Banco Montepio's profitability is still below its cost of capital, with a return on equity of 9.3%.

The quality of the credit portfolio has also improved for most banks.

Reported data reveals that banks generally have non-performing credit ratios (NPL/NPE) of less than 4%. The exceptions here are Novobanco, which has a non-performing loan ratio of 4.4%, and Grupo Crédito Agrícola, which has a non-performing loan ratio of 6.2%.

The bank led by Licínio Pina revealed its accounts yesterday and says that in absolute terms, the NPL (non-performing loans) portfolio recorded an increase of 143.0 million euros compared to 31 December 2022 to 728.9 million on 31 December 2023 (+24.4%) compared to the balance at the end of the year. ).

“The increase in the non-performing loan ratio is justified, mainly, by the increase in loans You are unlikely to payWhich represents about 65.8% of the total (+3.0 percentage points compared to 2022). The bank reveals that loans that are “delinquent by 90 days,” that is, those that have defaulted for more than 90 days, have a weight of 34.2% of the total non-performing loans, after their weight decreased in the percentage.

The Agricultural Bank is therefore the one with the worst credit portfolio quality in 2023. “Accumulated credit impairment, with reference to the end of December 2023, amounted to €389.3 million, resulting in non-performing loans being covered by credit impairment of €389.3 million,” explains CA Group. 53.4%” and that “low credit Non-performing loans The backlog, with reference to the end of December 2023, amounted to EUR 276.9 million, resulting in a NPL coverage level of 38%.

In the other private banks, after Crédito Agrícola and Novobanco, there are BCP with a non-performing loan ratio of 3.4% and Banco Montepio with 3.2%. Banks have sold off a lot of bad debt in recent years, which has helped push up the ratios.

An unproductive credit portfolio is not enough, it is necessary to look at the “low credit” policy. The champion here is the BPI at 98%; followed by Santander with 89.20%; Novobanko by 84.30%; Banque Centrale Populaire, 81.80%; Banco Montepio with 73.9% and Crédito Agrícola with poor credit coverage due to impairment of 53.4%.

When we analyze the cost of risk, i.e. the new impairment restrictions on the total credit portfolio, what we see is that the worst remains agricultural credit at 0.77%. The second worst is Novobanco at 0.50%, followed by BCP at 0.42%, Banco Montepio at 0.40% and the stars here are Santander at 0.17% and BPI at 0.16%.

Different indicators reveal a lot about the profile of each bank. Earnings reveal, as a rule, volume. But in this case the most profitable is not the largest. Santander Tota is Portugal's profits champion in private banking. The bank, led by Pedro Castro Almeida, recorded profits of $894.6 million, followed by the largest private bank, BCP.

The Miguel Maia-led bank posted consolidated profits of €856 million in 2023, compared to 2022 profits of €197.4 million (adjusted). Thus, the annual increase is 333.7%. As for Portugal, the net profits of the Central People's Bank amounted to 724.9 million euros. Which, strictly speaking, is of comparable value to Santander Tota, located only in Portugal.

The bronze medal on the podium (third place) goes to Novobanko, which achieved profits amounting to $743.1 million. But here too it must be noted that Novobanko's activity, unlike the Central People's Bank, is only a local activity.

The fourth largest company in the ranking is BPI with €524 million, representing an increase of 42%. But only in domestic activity (excluding banks in Angola and Mozambique) profits amounted to 444 million (+86%).

Then we have Crédito Agrícola with profits of 296.8 million, up 238.1% compared to 2022. Finally, Banco Montepio which recorded profits of 28.4 million euros. But here the sale of Finibanco Angola in the first half of 2023 took 116 million from the profits of the bank led by Pedro Leitao, which otherwise would have achieved its best profit ever. Profits ended up falling by 16% compared to 2022. The recurring result was 144.5 million euros, a value more than four times that obtained in the previous year.

In terms of banking products, Santander Tota is the second bank after the Banque Centrale Populaire. It even surpassed Novobanco in core revenue (margin and commissions).

In a year marked by inflation, managing costs was crucial to achieving efficiency, and Santander Tota once again led the way with a cost-to-income ratio of 26.60%. BCP is second best at 32%; Followed by “Novobanko” with 33%; CPI by 38.8%; agricultural credit by 41.80%; and Montbio, 50.8%.

Operating costs rose in all banks (due to inflation). But BPI emerged with a 13.00% increase in costs. The one who managed to contain the rise in costs was Montebio Bank, which achieved an increase of only 3.8%.

Overall, the trend has been toward credit contraction. Montebio recorded a decrease of 2.8%. BCP with a reduction of 1.6%.

But Santander and BBI surprised by increasing their (total) credit portfolio by 3% each.

Deposits increased by 2.7% at the Central Bank, but they were an exception for the group. Santander saw deposits fall by 8.5%. At BPI, deposits decreased by 4%. In Credito Agricola and Montebio, it decreased by 1.9%, and in Novobanco by 1%.

Banks saw a “massive increase” in profits in 2023, benefiting from rising interest rates, but a decline is expected in 2024 compared to the previous year's “peak”.

This is evidenced by the fact that the Portuguese Central Bank, for example, recorded a historic annual result of €856 million thanks to financial margin, but the fourth quarter result of the largest Portuguese private bank began to decline with a 16% decline in the fourth quarter, which represents a sign that The golden age ended in September.