Press release of the Banco de Portugal on the Annual Report – Activities and Financial Statements 2020

In 2020 the COVID-19 pandemic and the containment measures put in place led to an unprecedented contraction in economic activity and to financial market tensions, with repercussions for the Banco de Portugal's mission of maintaining price stability and safeguarding financial stability.

The Bank participated in national and international efforts to ensure the resilience of the financial system and protect liquidity and the flow of credit to the economy, namely:

• the definition and implementation of euro area extraordinary monetary policy measures. These measures included asset purchases, the provision of large-scale liquidity and the granting of more attractive funding conditions to the financial system;
• the preparation and revision of the public moratorium regime, by monitoring the public and private moratoria granted by credit institutions;
• the relief in some supervisory measures, allowing financial institutions to operate with capital levels below the level of capital defined by the Pillar 2 Guidance (P2G) and the combined buffer requirement, as well as liquidity levels below the liquidity coverage requirement (LCR). Likewise, asked institutions to take appropriate preventive measures to ensure their business continuity and to minimize financial losses. Among other measures, Banco de Portugal recommended supervised institutions not to distribute dividends and to adopt stricter measures when granting and paying variable remuneration.

To facilitate electronic payments, the Bank changed the maximum amount per contactless transaction without the need to enter a PIN, in coordination with the main stakeholders in the payment services market, and participated in the preparation of exceptional measures to promote card-based payments.

To better monitor the evolution of the economy, the Bank adapted and innovated in terms of data, methodologies and analysis and forecasting tools. In partnership with Statistics Portugal, it launched the Fast and Exceptional Enterprise Survey. It also developed a daily economic indicator and released new statistics on public debt, budget outturn and indebtedness of the non-financial sector and a new preliminary indicator of the travel component of the Balance of Payments.

At the end of 2020, the Banco de Portugal's balance sheet totalled €192 billion, an increase of €33 billion compared with the end of 2019.

This increase in the balance sheet was mainly due to the measures taken to mitigate the effects of the COVID-19 pandemic on the economy.

With regard to balance sheet developments, particularly noteworthy on the assets side were:

• the increase in monetary policy assets of €30 billion, reflecting (i) a €15.6 billion increase in the portfolio of securities held for monetary policy purposes, due to purchases of securities under the new Pandemic Emergency Purchase Programme (PEPP) and, to a lesser extent, of securities from the Asset Purchase Programme (APP), and (ii) a €14.8 billion increase in refinancing operations.
• the increase in gold and foreign reserves and euro assets, chiefly related to the 14% rise in the gold price.

Also, on the liabilities side:

• the growth in deposits of credit institutions with the Banco de Portugal, of €12.4 billion, as a result of the significant liquidity injection resulting from monetary policy measures.
• the substantial increase in banknotes in circulation, 11% in the Eurosystem as a whole, due to the rise in uncertainty in Europe at the onset of the pandemic.

Net profit for the year was €535 million, an increase of €31 million compared to what was budgeted for 2020.

To this contributed:

• the interest margin, to the amount of €802 million, whose main component is interest income from securities held for monetary policy purposes, totalling €882 million. Interest payable on refinancing operations to credit institutions were recognised to the amount of €202 million.
• realised gains arising from financial operations and unrealised losses, to the amount of -€21 million, associated with the depreciation of the US dollar in the final months of the year.

Administrative expenses totalled €196 million, a decrease of €9 million compared with 2019. Staff costs decreased by 5%, mostly reflecting the decline in early retirement costs. Supplies and services from third parties also decreased by 5%.

Net profit for the year made it possible to distribute dividends to the State to the amount of €428 million. Including income tax, €671 million were distributed to the State.

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