Bank Of Portugal Research Articles

Digital transformation in Portuguese banking: impact of the COVID-19 pandemic

PurposeCurrently, digital transformation is a process that cuts across different sectors of activity, including banks. One of the examples is the availability of products and services on digital channels. This study aims to identify the changes implemented in the digital channels of banks in Portugal that were driven by the COVID-19 pandemic, contributing to the acceleration of digital transformation.Design/methodology/approachThe methods involve a qualitative approach, from the analysis of a selection of 30 results and accounting reports from ten banks between 2019 and 2021 using the Leximancer software to identify the main themes and concepts.FindingsFour themes and 40 most relevant concepts were identified from the results of the analysis. In conclusion, banks have reinforced digital channels regarding products and services with apparent concerns associated with security.Research limitations/implicationsThis article aims to contribute to two conceptual maps that allow us to understand the measures implemented by banks in digital channels during the pandemic.Practical implicationsThis investigation aims to enable managers to define other initiatives within the scope of digital channels and enhance those already implemented.Originality/valueThe scientific articles identified and published so far do not specifically address the impact that the COVID-19 pandemic has had on the digital channels of banks in Portugal. The originality of this article arises from this gap identified regarding the absence of similar scientific studies. The pandemic is a new phenomenon that occurred for the first time in 2019 and globally, so it is essential to know the impacts on Portuguese banks.

Profitability of Commercial Banks in Portugal and Spain: A Panel Data Analysis Model

The Portuguese and Spanish banking system, in the framework of the economic and financial crisis suffered a significant reduction in the profitability of its banking business. Taking into consideration the problem of profitability in the banking sector at a global level, some studies have been increasingly highlighted both in academia and in the financial market. Thus, this paper aims to analyze the determinants of banking profitability of banks operating in two different financial systems, Portugal and Spain, for the periods from 2014 to 2019. To obtain the results, we used a panel data analysis model that combines cross-section (banks) and time-series (years) data, obtaining a strongly balanced panel. Multiple linear regression models were then used and it was possible to identify credit risk, solvency and operational efficiency as the main factors explaining bank profitability. Finally, the results show that the high credit risk and operational efficiency indicators of these banks have a negative significant influence on their profitability. In turn, more robust solvency indicators have a positive significant dominant on bank´s performance.

Effects of Heterogeneous Institutional Investors on the Performance of Portuguese Banks

Abstract Effective corporate governance is fundamental to the correct operation of the banking sector. This study examines corporate governance in terms of the effects of different combinations of institutional investors on the performance of Portuguese banks. Effects based on kind (e.g. type of institutional investor) and degree (e.g. institutional investor experience) are considered. The results of a crisp-set qualitative comparative analysis (csQCA) show that the simultaneous presence of banks and corporations as shareholders, and non-presence of financial companies can positively affect banks’ return on average assets (ROAA) and return on average equity (ROAE). This research provides a wider picture of possible impacts in terms of banks’ performance when there are different types of institutional owners. Lastly, the results are particularly relevant for the supervision protocols developed by the Bank of Portugal and the European Central Bank, in situations of changes of banks’ shareholders.

Banks and Climate-Related Information: The Case of Portugal

In 2014, a European Union (EU) Directive required certain large undertakings and groups to disclose non-financial information from 2017 onwards. In 2017, the EU guidelines on non-financial reporting established that reporting climate-related information is part of the non-financial information. Later, in 2019, the guidelines were reinforced to include a supplement that envisages improving climate-related information reporting. Banks can contribute to reducing climate-related risks by supporting investments in economic activities that aim to mitigate the risk of climate change. Capital needs should be reoriented towards sustainable investment. Banks shall manage financial risks arising from climate change; therefore, they must integrate climate change into their policies and procedures, assessing the potential impact of projects and financing on climate change. This study aimed to evaluate how banks in Portugal have been reporting climate-related information and whether the level of information has increased since 2017. Using content analysis, findings indicated that banks are already including climate-related information; however, they are still far from approaching what the new guidelines require. Results suggested that there is still a long way to go in this area concerning banks and regulators.

Liquidity of commercial banks in Portugal and Spain

Liquidity is very important for the functioning of financial markets, especially for the banking sector, because one of the critical aspects in the banking business is precisely the process of transforming short-term funds and placing them in the medium and long term. This paper aims to comprehensively assess the liquidity positions of Portuguese and Spanish commercial banks through different liquidity ratios for the period from 2002 to 2015 and understand whether the liquidity management strategy differs by bank size. To this end, unconsolidated balance sheet data were used, which were obtained from the banks annual reports. The sample includes a significant part of the Portuguese and Spanish banking sector (not only by the number of banks, but also by the representation in banks total assets). The results obtained show that Spain's banks' liquidity indicator has decreased over the last four years. In contrast, bank liquidity indicator in Portugal varied slightly positively during the period 2002-2006 but decreased sharply between 2010 to 2015. Bank liquidity increased slightly during the period of the financial crisis in both countries, namely between from 2007 to 2009. Finally, it is concluded that smaller banks have less fluctuating liquidity management, i.e., large and medium-sized banks show greater variation in bank liquidity in the period under analysis, i.e., they are less liquid.

Novo Banco – what good out of a bad bank?

Research methodology Analysis of public sources. Case overview/synopsis The bank named “Novo Banco” (New Bank in Portuguese) was created because of an emergency intervention by the Bank of Portugal to save the “good” assets of the once great but bankrupt Banco Espírito Santo (BES) on August 4, 2014. The toxic assets remained in BES (dubbed “bad bank”). BES was one of the biggest private banks in Portugal, with origins mounting back to the year 1869. In 2013, it was headed by the founder’s great-grandson, Ricardo Salgado, when an external audit revealed several problems with the bank’s accounting and concluded that BES had a severe financial problem (the risky credit represented 11.1% of the bank’s accounts). The bank underwent a public capital increase (endorsed by several public figures, including the Portuguese President at the time, Cavaco Silva) of €1.045m to reposition itself, which was 100% successful (demand of about 160%, with a significant part of foreign investors). However, continued amounts of suspicions led Ricardo Salgado to be replaced by Vitor Bento (via a settlement between BES’s shareholders and the Bank of Portugal) in July 2014. At the end of that same month, BES announced imparities totaling the amount of €4.2535m. This led the European Central Bank to suspend BES’s access to the financial operations, forcing it to reimburse its credit to the Eurosystem in the value of €10.000m. In two days, the stock prices dropped by 80% to around €0.03 per share. It was later proven that the administration led by Ricardo Salgado had disobeyed the Bank of Portugal 21 times between December 2013 and July 2014, apparently acting against the institution’s best interests. Some carousel schemes with companies within the Espirito Santo Group were also detected in BES’ financial movements to improve the bank’s financial statements. Complexity academic level Finance Valuation, Strategy

ANALISA NASABAH POTENSIAL TABUNGAN DEPOSITO BERJANGKA MENGGUNAKAN TEKNIK KLASIFIKASI DATA MINING

Time deposits are a product of a financial institution, which is currently increasing. The main target of this time deposit marketing is the old customers of the Bank. To increase the effectiveness of marketing customers are grouped into potential and non-potential customers. This means that potential customers have a greater chance to open a time deposit account. Customer data is taken from the UCI repository, originating from Banks in Portugal. Data is processed with rapidminer software using the Decision Tree method with Particle Swarm Optimization, Naïve Bayes with Particle Swarm Optimization and finally processed using Neural Network with Particle Swarm Optimization. Data processing results were compared and showed that the Naïve Bayes Algorithm with Particle Swarm Optimization had the highest accuracy of 97.04%. Therefore an application designed based on Naive Bayes with Particle Swarm Optimization. From the original attribute consisting of 20, only 9 attributes can be used so that the level of accuracy is high. Attributes used have values ​​more than 0.500, while those that have these values ​​are omitted. The design was created using the Unified Modeling Language (UML) and Visual Basic 6.0 to create an User Interface.

Online disclosure of intellectual capital: an analysis of the Iberian banks?

Based upon an empirical-positivistic methodology, and resorting to the content analysis of the webpages through the application of an innovative index of disclosure based on the European models Intellectus and InCas, built specifically to analyze the disclosure of intellectual capital in the banking sector, we studied the disclosure of intellectual capital of the eighty-six banks operating in Portugal and Spain in 2016. The empirical results revealed that the banks in Portugal and Spain have disclosed an average value of 0.2355 of information on intellectual capital through their webpages in 2016. Relational capital was the component these organizations most disclosed with an average of 0.4529, followed by the disclosure of structural capital, and lastly, human capital. The use of a particular index of disclosure about intellectual capital applied to the singularity of the banking sector that covers two peripheral countries in Southern Europe, reveal to be the most contribute to the literature.

A monetary plethora and what to do with it: the Bank of Portugal during the Second World War and the postwar period (1931-60)

Until the Second World War the Bank of Portugal (BoP) was a long way from possessing the features normally associated with a central bank. It was still a commercial bank, albeit one that had acquired some central bank functions. The war period was decisive in removing this ambiguity. The change was caused mostly by an unusually large influx of international means of payment (gold and foreign exchange) as a consequence of Portugal's neutrality during the war. However, all of this happened during a very troubled period for the BoP, thanks to the collapse of the gold‐exchange standard. The BoP adapted quickly to the new environment of discretion, government interference, and nationalism, although in a relatively original way: it followed the trend but at the same time retained certain features of a central bank still committed to gold standard principles. The two essential objectives of the BoP were to keep the value of the Portuguese currency stable and to keep interest rates low in order to encourage economic growth. The bank was successful on both counts during the war and the postwar period using a series of non‐conventional instruments.

THE IMPACT OF CSR PERCEPTIONS ON MUTUALISTIC VALUES AND THEIR IMPACTS ON BRAND LOYALTY AND RESISTANCE TO NEGATIVE INFORMATION

Corporate social responsibility (CSR) practices are critical to strengthen the relationships between mutualistic banks and their customers. This study aims to identify the impacts of customer perceptions of CSR (the ethical and commercial dimensions) on the perceptions of mutualistic values and their impacts on brand loyalty and resistance to negative information. Mutualistic values (MV) are analysed because mutualistic institutions base their activities not only on the intention to maximise profit but also on adding social value. The research uses data collected through a structured questionnaire from a sample of 391 customers of mutualistic banks in Portugal. In order to operationalize the variables, scales used in existing studies were adapted. Besides that, a new scale to measure MV has been developed. Structural Equations Modelling (SEM) was used to test the investigation model and to provide answers to the proposed hypotheses. The results show that CSR perceptions impact on mutualistic values and that both impact on brand attitudes like loyalty and resistance to negative information. The commercial dimension of CSR seems to have a more relevant impact.

Internal and external determinants of banks’ profitability

Purpose– The purpose of this paper is to analyze the profitability of 27 universal banks in Portugal over the period from 2002 to 2011.Design/methodology/approach– The paper conducts ordinary least squares estimations with fixed effects using three measures of profitability: the return on average assets, the return on average equity and the net interest margin. Several independent variables were included concerning both bank-specific and macroeconomic and industry-specific characteristics which have not been considered in previous studies. In addition, the sub-sample between 2008 and 2011 was considered for comparative analysis.Findings– The authors concluded that the independent variables selected, with few exceptions, behaved accordingly to what was expected.Originality/value– To the best of the author’s knowledge, this is the first attempt to examine determinants of banks’ profitability in Portugal, both internal and external, using time series data, which have not been considered in previous studies.

AN AHP-BASED APPROACH TO CREDIT RISK EVALUATION OF MORTGAGE LOANS

Mortgage loans for home purchase require careful analysis by all parties involved in the transaction, and credit-scoring is usually adopted to assist the decision process. From a credit institution standpoint, credit-scoring for mortgage loan risk evaluation becomes even more important in scenarios of economic turbulence and recession, primarily because of the severe restrictions imposed on credit availability that result from reduced access to both money and debt markets and subsequent decreasing liquidity. Employing an AHP – Analytic Hierarchy Process – based approach in the creditscoring system used by one of the major banks in Portugal, this study proposes a methodological framework conceived to adjust trade-offs among evaluation criteria and provide decision makers with a more transparent mortgage risk evaluation system. Practical implications of our framework are also discussed.

Assessing credit risk of mortgage lending using MACBETH: a methodological framework

Purpose – Considered the largest investment for most households, buying a house requires careful and transparent analysis by all parties involved in the transaction. The aim of this paper is to propose a methodological framework allowing for the readjustment of trade-offs among risk evaluation criteria, considered of extreme importance in the lending decision process of mortgage loans. Design/methodology/approach – Multiple criteria decision analysis (MCDA) has proved over the years to be effective and versatile in handling compensations among criteria. Measuring attractiveness is applied by a categorical based evaluation technique (MACBETH) to a pre-established structure of credit-scoring criteria for mortgage lending risk evaluation. This pre-established structure is currently used by one of the largest banks in Portugal. Findings – The framework allowed the authors to provide the credit experts who participated in the study with a more informed, transparent and accurate mortgage-lending risk-evaluation system. The sensitivity and robustness analyses carried out also helped in promoting discussion and supporting the readjustments made. Research limitations/implications – The study shows the usefulness of using the MACBETH approach to assist credit analysts in making better informed decisions, and opens avenues for further research. However, due to the dependence on the participants involved, extrapolations without proper caution are discouraged. Practical implications – The credit analysts who participated in this study considered the framework more discerning in terms of Basel directives. Originality/value – The integration of MACBETH and credit-scoring mechanisms holds great potential for risk assessment and decision support. No prior work reporting the application of MACBETH in terms of mortgage-lending risk-evaluation is known.

READJUSTING TRADE-OFFS AMONG CRITERIA IN INTERNAL RATINGS OF CREDIT-SCORING: AN EMPIRICAL ESSAY OF RISK ANALYSIS IN MORTGAGE LOANS

Credit-scoring becomes increasingly important in poor economies and recessions. Decreasing liquidity due to reduced access to both money and debt markets has induced banks to impose restrictions on offering credit, including credit for mortgage loans. In this paper we analyze the internal rating system used by one of the top-five banks in Portugal, and propose a methodological framework which, based on an application of the Delphi technique, allows adjusting trade-offs among evaluation criteria and provides decision makers with a fairer, more accurate and transparent mortgage risk evaluation system.

Quantitative vs. Qualitative Criteria for Credit Risk Assessment

The existing vast literature on credit risk assessment and default prediction provides models building mostly in quantitative indicators. We present the results of a survey carried out of experts from the main banks in Portugal, conveying evidence on the dominant procedures undertaken by the Portuguese banking system. Our analysis concludes on the relevance of qualitative criteria, particularly management’s experience and reliability, and on their significant negative correlation with banks’ default records. Within this context the paper reflects on the role of multi-criteria decision analysis (MCDA) models as a way to process credit risk assessment integrating qualitative and quantitative aspects.

Market Integration in the Golden Periphery. The Lisbon/London Exchange, 1854–1891

Portugal was the first independent nation to follow Britain in joining the gold standard. Although beset by persistent current account deficits and heavily dependent on foreign capital inflows, it enjoyed a relatively stable tenure of 37 years on gold. This paper shows how it was possible to secure currency stability, despite a lower credibility for the peg and a higher incidence of gold point violations than in core countries. The explanation lies in the central role played by institutional actors, such as the Bank of Portugal and/or the government, whose interventions in the exchange market kept the parity within the band.

The Emergence of Modern Central Banking from 1918 to the Present. Edited by C.-L. Holtfrerich, J. Reis, and G. Toniolo. Aldershot: Ashgate, 1999. Pp. 398. $99.95.

This book consists primarily of the proceedings of a conference held at Evora in Portugal in May 1996 to celebrate the sesquicentennial of the Bank of Portugal. The conference comprised two parts, the first involving (central) bank archivists and the second monetary historians. This book covers only the contributions of the monetary historians, though there were a sizeable number of these: 11 papers treat the history of central banks in 17 countries—the United Kingdom; France, Spain; Germany, Japan; Sweden, Finland; Portugal; Italy; Austria, Hungary, Czechoslovakia; the United States, Canada; Argentina, Brazil and Mexico—plus the IMF and the BIS. In addition there is an introduction by two of the three editors, and a concluding comment by Barry Eichengreen, which latter reads more like an earlier introduction, since it refers both to a paper (by Marc Flandreau) presented at Evora but published elsewhere in the meantime, and to another paper (by Michael Collins), which clearly was totally rewritten (and with a new joint author) between the conference and publication; overall perhaps an indication of problems in the publication process?

Cross boundary relationships in Portuguese banking and corporate financial services

Conceptual analyses of buyer‐seller interaction in services are rare, particularly with reference to banking and financial services in general. This paper tries to apply the industrial network paradigm to relationships between firms and commercial banks in Portugal. It is argued that relationship banking is complex and embedded in an aggregate structure: banking networks. Three Portuguese case studies of corporate banking relationships are discussed. The paper examines the linkages between banks and factoring firms connected to the corporate banking relationships. It is argued that these linkages are forms of multi‐organizational partnering, in notion very similar to “internal” networks.

The Portuguese Bank Note Case

In the three complementary parts into which this book is divided, namely, The Story, The Legal Solutions, and The Financial Solution, Sir Cecil Kisch has set out the several aspects of the famous Portuguese Bank Note Case (Banco de Portugal v. Waterlow & Sons, Ltd. [1932] A. C. 452) in a way to quicken the mind and gladden the heart of lawyer, economist and dilettante in detection alike. The primary purpose of the book, however, is to put to the test of economicanalysis the various views brought out in the course of the case as to the measure of loss to the Bank of Portugal arising from the fraudulent issue of Vasco da Gama notes