Portuguese banks and the economic adjustment programme: balance sheet adjustments and impact on profitability

Double Degree. A Work Project presented as part of the requirements for the Award of a Masters Degree in Management from the NOVA – School of Business and Economics and a Masters Degree in Finance from Louvain School of Management

Impact of the Subprime Crisis in the Provision of Credit Risk of Major National Banks

Financial institutions are directly exposed to the credit risk, that is, the risk of the borrower not fulfill with their obligations, paying their debts in its stated periods established previously. The bank predict this type of risk, including them in their balance-sheets. In 2006/2007 there was the impact of a new financial crisis that spread around the world, known as the crisis of subprime. The objective of this study is to analyze if the provisions for credit risk or liquidation increased the sprouting of the crisis of subprime in ten major national banks, chosen accordant to their total assets. To answer this question, the balance-sheets of each one of these banks in the period of 2005 to 2007 were analyzed. This research is characterized, as for its objectives, as descriptive and as for the procedures as documentary research. It is also characterized as having a qualitative approach. The results show that the crisis of subprime has caused little impact in the credit risk provision of the analyzed institutions. It was noticed a slight increase in the provision indicators at the peak of the crisis in 2006. These percentages were reduced in, 2007, probably reflecting the economic stability of Brazil and the stagnation of the crisis Of subprime in that year, at least in relation to in our country.

The impact of the implementation of the Basel III recommendations on the capital of portuguese banks

This paper analyses the impact of the implementation of the Basel III recommendations, using the standard method, in Portugal. For our study, we used the annual reports of 31st of December of 2012, and found out that out of the fourteen banks that published annual reports, only six satisfied the minimum ratios laid out by BCBS. Till 2012, Portuguese banks used an internal ratings method based on the Basel II recommendations known as notice 6/2010 of the Portuguese central bank, Banco de Portugal. As the implementation of the recommendations of Basel III in the EU via the Credit Review Directive IV is scheduled for 2014 and later years, Portuguese banks may severely contract credit upon implementation, as that is the easiest, fastest and cheapest way for banks to satisfy the minimum ratio requirements as compared to an increase of capital or credit spreads.

Testing for volatility persistence change: The effect of the credit crisis on the Portuguese banks

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Millennium BCP: Portuguese banks: Equity Investment Report

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Determinants of Portuguese bank’s provisioning policies: Discretionary behaviour of generic and specific allowances

In this paper we test for the impact of the regulatory environment on a bank’s discretionary provisioning practices. We develop a model that structures the dynamics of the provision policy for the two classes of provisions: generic provisions and specific provisions. The model is tested using a comprehensive database of all financial institutions operating in Portugal for 1990-2000. This unique dataset comprises banks subject to the Portuguese rules as well as bank subsidiaries subject to their home-country regulation and we were able to identify distinct behaviours between them. Our results show the importance of handling he two types of provisions separately. They support the hypothesis that banks have a discretionary behaviour in setting up their provisions, and find evidence of income smoothing and capital management. We also find that the regulatory regime impacts on discretionary provisioning policies because banks when forced to increase one type of provision react by reducing the iscretionary component of the other, a finding we designated as a substitution effect.

Is the Basel III Leverage Ratio countercyclical? A study for Portuguese banks

This work analyses how the leverage ratio behaves through the cycle, vis-à-vis other capital ratios. For a sample of the largest Portuguese banks, the Basel III leverage ratio is indeed countercyclical. This result is relevant from a regulatory perspective, since the introduction of a limit on the leverage ratio will function as a restriction in the banks’ balance sheet size, reducing the economic costs associated with the excessive growth of leverage in periods of economic expansion followed by aggressive deleveraging in the downturn. However, one cannot exclude that restrictions on banks’ leverage incentivize its transference to less regulated intermediaries.

Basel III: The impact of new capital requirements on profitability of Portuguese Banks

This empirical study aims to explore the impact of increased capital ratio requirements, on the ROE of the Portuguese banking sector. The paper employs both a quantitative- and qualitative approach, with the qualitative approach as the main method of research. The method adopted to conduct the qualitative research was semi structured elite interviews with banking executives. Higher capital requirements decrease the ROE of banks in Portugal, but huge impairments charges, macroeconomic factors and increased costs of deposits are clearly the dominant reasons for the reduced levels of ROE the past years. Among the measures taken to increase capital ratios, reduction of RWAs and non-core assets have been the main focus, but the issuance of CoCos is regarded as the most expensive measure due to high interest payments. However, the CoCos will not have any effect on the ROE in the long term. It is difficult to draw any conclusions on the impact of more equity in the balance sheet on the ROE of Portuguese banks, as many banks currently don’t generate enough money to pay back on shareholders´ investments.

Characteristics of credit risk assessment methods of major Nordic banks in allocating capital when extending credits to large corporations

Credit risk assessment is an integral part of banking. Credit risk means that the return will not materialise in case the customer fails to fulfil its obligations. Thus a key component of banking is setting acceptance criteria for granting loans. Theoretical part of the study focuses on key components of credit assessment methods of Banks in the literature when extending credits to large corporations. Main component is Basel II Accord, which sets regulatory requirement for credit risk assessment methods of banks. Empirical part comprises, as primary source, analysis of major Nordic banks’ annual reports and risk management reports. As secondary source complimentary interviews were carried out with senior credit risk assessment personnel. The findings indicate that all major Nordic banks are using combination of quantitative and qualitative information in credit risk assessment model when extending credits to large corporations. The relative input of qualitative information depends on the selected approach to the credit rating, i.e. point-in-time or through-the-cycle.

The effect of extreme cold temperatures on the risk of death in the two major Portuguese cities

It is well known that meteorological conditions influence the comfort and human health. Southern European countries, including Portugal, show the highest mortality rates during winter, but the effects of extreme cold temperatures in Portugal have never been estimated. The objective of this study was the estimation of the effect of extreme cold temperatures on the risk of death in Lisbon and Oporto, aiming the production of scientific evidence for the development of a real-time health warning system. Poisson regression models combined with distributed lag non-linear models were applied to assess the exposure-response relation and lag patterns of the association between minimum temperature and all-causes mortality and between minimum temperature and circulatory and respiratory system diseases mortality from 1992 to 2012, stratified by age, for the period from November to March. The analysis was adjusted for over dispersion and population size, for the confounding effect of influenza epidemics and controlled for long-term trend, seasonality and day of the week. Results showed that the effect of cold temperatures in mortality was not immediate, presenting a 1–2-day delay, reaching maximumincreased risk of death after 6–7 days and lasting up to 20–28 days. The overall effect was generally higher and more persistent in Lisbon than in Oporto, particularly for circulatory and respiratory mortality and for the elderly. Exposure to cold temperatures is an important public health problem for a relevant part of the Portuguese population, in particular in Lisbon.

Reputational risk of banks : a study on the effects of regulatory sanctions for major european banks

Mestrado em Finanças

Efeito de contágio no mercado financeiro português

Mestrado em Contabilidade e Gestão das Instituições Financeiras

Reação dos mercados de CDS e de cotações bolsistas a anúncios de rating: o caso dos maiores bancos portugueses

A presente dissertação tem como principal objetivo avaliar a capacidade que os mercados de Credit Default Swaps (CDS) e acionista apresentam de antecipar alterações nas notações das principais Agências de Rating mundiais. Para esse efeito serão analisadas as cotações diárias dos prémios de CDS e as cotações diárias de ações dos quatro principais bancos portugueses entre 2004 e 2012, bem como os eventos de rating associados a esses bancos. A literatura existente, apresenta, resultados que tendem a evidenciar que os CDS reagem, regra geral, de forma mais rápida a anúncios das Agências de Rating e que esta mesma reação é maior para eventos negativos (downgrade das notações de rating) do que para eventos positivos (upgrade das notações). O presente estudo detecta, para dois daqueles bancos alguma capacidade dos prémios dos CDS anteciparem eventos negativos de rating.

How bank business models relate with risk?: The case of Portugal in times of financial crisis

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Effect of European Sovereign debt crisis on banks’ stock market performances: application to Portuguese data

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics