Mensagem do Presidente EN

Message from the Chairman of the Board of Directors

The year 2018 was marked by several factors that significantly affected the financial markets performance in the period.

In first place, the macroeconomic and market context was highly conditioned by trade tensions between the United States of America (US) and China, which raised serious uncertainties about the future growth of world trade. On the other hand, in Europe doubts were raised about the exhausting Brexit process and the position of the new Italian government regarding Europe, along with the sustainability of its public finances.

Finally, uncertainties about the consequences of the normalization process of the monetary policies of the main Central Banks, namely the US Federal Reserve and the European Central Bank (ECB), have increased.

The combination of these factors created fears of a recession in the world economy and resulted in a very negative year in the financial markets, in particular in stocks, leading to what was clearly the worst year since the 2008 crisis. In any case, the world economy grew by 3.7% in 2018, but with high differences between economies. The biggest highlight was for the US growth, boosted by fiscal stimulus to companies, from the Trump Administration.

Despite the negative context in 2018 and the very unfavorable consequences for the financial markets, the outlook for 2019 is relatively positive, both in macroeconomic terms and in relation to the financial markets. Indeed, the less favorable expectations for world economic growth could be compensated by a more moderate activity of the Fed and the ECB in the normalization of interest rates. However, it is clear that the performances of the world economy and the markets will be mainly determined by the evolution of trade tensions and the way in which the Brexit process will take place, and these situations may require a much more accommodative behavior of the monetary authorities at the global level.

The Portuguese economy, on the other hand, grew 2.1% in 2018, down from the previous year, affected by the slowdown of the European economy in the same period. However, the progress of the consolidation of its public finances is highlighted, which allowed that the interest rates of the Portuguese public debt were not practically affected by the serious tensions in the Italian public debt market.

Despite the deterioration of the advanced and confidence indicators, the forecast for the Portuguese economy in 2019, although reasonable, will naturally be conditioned by situations such as the outcome of Brexit, the electoral cycle in Europe, the evolution of world trade and of the European economy in particular.

In the banking sector, there was a near anemic evolution of corporate credit, which continued to recess in 2018, while consumer credit again showed a significant growth rate. The year was also marked by the continuity of the effort to clear financial institutions’ balance sheets, involving considerable sales volumes of bad credit, strengthening of impairments and sale of properties in portfolio. Overall, the banking sector has been able to improve its profitability, with the prospect of leaving a major restructuring cycle, marked by reductions in personnel, closure of branches and reinforcement of impairments. The major challenges in this sector are now in the implementation of new strategic models, characterized by the digitalization resulting from the current technological developments, leading to new customer relationship paradigms and new models of partnership between financial institutions and fintech entities.

The Bank, for its part, registered in 2018 a significant loss that resulted from the convergence of several factors:

• Net interest income decreased, mainly due to the increase in the average volume of deposits compared to the previous year;
• The losses recorded in financial assets, originated by the extremely negative year in the financial markets;
• The growth of general and administrative expenses, due to the reorganization effort and the increase of legal, consulting and audit services;
• The strengthening of impairment for loans to customers, due to the significant effort to optimize the portfolio and reduce non-productive assets;
• The partial reversal of the assets related to deferred taxes constituted in previous years.

The exercise was also marked by several measures taken to strengthen both the business and the capital and, overall, the financial solidity of the Institution. In this context, it is important to highlight the two capital increases (totaling 15.5 million euros), the increase in impairments, the reduction of non-productive assets, the revision of the strategy, the strengthening of the internal control system, the organizational restructuring, the considerable investment in technology and a strengthened staffing structure.

It is expected that 2019 will be a very important year for Banco Português de Gestão, as it should mark the beginning of a process of deep transformation of its business. This transformation will be based on 4 essential dimensions:

• Stable and balanced growth between domestic credit originated directly, credit originated by third parties in the domestic and international markets, financial services and financial assets portfolio;
• Adequate strengthening of own funds, in accordance with the objectives of the 2019-2021 Strategic Plan. Additionally, preserve a diversified funding acquisition;
• Gradual implementation of a new customer relationship model, within the scope of the launch of a new online / mobile banking platform, which will place new contact channels at the service of the business;
• Reinforcement of the governance model and the internal control system, involving team reinforcement and technological investments.

Banco Português de Gestão faces the ongoing technological disruption as an opportunity for small banks to develop and market innovative products and services capable of capturing customer segments that do not consider their needs fully satisfied through the offer available in the current landscape of the Banking sector.

We are aware that in the implementation of any strategy, people are fundamental, so the commitment on the growth and development of employees will be to strengthen.

To our shareholders, customers and partners of the Social Economy, such as cooperatives, mutual associations, mercies, foundations and IPSS that, in carrying out their activities, have social objectives, we wish to express the commitment that our Institution will continue to be concerned with financial solutions that involve them and that keep alive a relationship that endures for almost two decades.

It is with strong conviction that Banco Português de Gestão will, in 2019, seek to honor with its customers, shareholders and other stakeholders, the commitment to meet their best expectations.

Finally, a thank you to all employees for the effort and work they have done and to the supervisors, regulators and partners who have accompanied and helped us to improve.

The Chairman of the Board of Directors

Carlos Augusto Pulido Valente Monjardino