Impairments of 109,4 million put Montepio at a loss of 51,3 million

Banco Montepio recorded losses of 51,3 million, which compares with profits of 3,6 million in the same semester. Covid impairments pulled the bank into negative territory. But revenues are also falling and the CET1 capital ratio has dropped to 11,5%. The NPE stock has improved, but the cost of risk has gone up.

Banco Montepio recorded 109,4 million credit impairments resulting from the increase in credit risk motivated by the Covid-19 pandemic and the reinforcement of impairment levels. This was the reason that led to the negative result of 51,3 million in the first half, which compares with 3,6 million profit in June 2019.

"The net results for the first half of 2020 were determined by the higher level of impairments and provisions set up following the downward revision of the macroeconomic scenario due to the impact of Covid-19 on economic agents, both individuals and companies", says the bank in a statement.

Montepio details that the credit impairment recorded in the first semester of 2020 “reached 109,4 million, showing an increase of 67,4 million compared to the amount recorded in the same period of 2019, as a result of the increase in credit risk determined by the pandemic Covid-19, on the one hand, and the strengthening of impairment levels for some credit exposures that were in default, on the other ”.

“The aggregate of other impairments and provisions, related to other financial assets, other assets and provisions, totaled 12,8 million in the first half of 2020 and compared with the 5,1 million recorded in the same period of 2019, as a result of increased credit risk, including debt instruments, and in properties received in kind, ”says the institution.

The bank led by Pedro Leitão recorded a drop in banking income from 7,3% to 168,9 million, due to a 4,5% reduction in net interest income, a drop in net commission income (-2,7% ), and that was not offset by the 7,2 million results of financial operations that report in the semester.

Costs, in turn, rose 1,6% to 127,5 million euros, due to a 4,2% increase in general administrative costs in a year and a 1,2% increase in personnel expenses.

“Regarding the core banking product, considering the set of income recorded in net interest income and commissions and excluding the impact of the subordinated debt issued, there was a decrease of 2,2%, from 182,3 million in the first half of 2019 to 178,3 million in the first half of 2020, despite the reduction in the levels of economic activity observed during the second quarter of 2020 ”, says the bank.

The financial margin reached 114,7 million in the first half of 2020, compared to the 120,1 million recorded in the same period of the previous year, “reflecting the unfavorable effects of exogenous factors associated with the Covid-19 pandemic and which determined lower levels of activity in private customers and companies, and also that market interest rates remain at very low levels ”.

Despite this, the performance of the financial margin in the first half of 2020 “benefited from the systematic management of the pricing of retail and institutional customer deposits, where, in both cases, there was a reduction in the cost of these resources compared to the amount shown in the period counterpart in 2019 ”.

Net commissions recorded in the first half of 2020, when incorporating the effect of the reduction in economic activity in the second quarter of this year, fell from 57,7 million in the first half of 2019 to 56,1 million in June this year.

Results on financial operations totaled 7,2 million, evolving favorably compared to the negative amount of 0,4 million recorded in the same period in 2019, and translate the gains on the disposal of public and private debt obligations realized during the first quarter of 2020 , among others.

Other operating results increased from -1,4 million in the first half of 2019 to -10,8 million recorded in the first half of 2020, mainly due to the “effect of realizing gains of 9,7 million shown in the first half 2019 with the sale of assets accounted for at amortized cost. ”

Operating costs amounted to 127,5 million in the first half of 2020 when in the same period of 2019 they had been 125,4 million euros, highlighting the impacts of salary updates and investments made in technological renovation and modernization within the scope of digital transformation that Banco Montepio has ongoing, despite the synergies captured in the renegotiation of some contracts, in particular in the costs of consultancy and property conservation and repair.

The bank details that the total current and deferred taxes recorded in the first semesters of 2020 and 2019, was calculated based on the realities that contributed to the formation of the results and the respective fiscal framework, namely with regard to the constitution and reversal of temporary differences and the identification of permanent differences, with emphasis on the contribution of the banking sector as it is not accepted for tax purposes as a cost.

“The contribution of discontinued operations in the first half of 2020, after deducting non-controlling interests, stood at 5 million, registering a favorable evolution over the 4,7 million recorded in the same period in 2020, reflecting the good performance observed by Finibanco Angola in the period, ”says the Bank in a statement.

There is also no positive evolution data on the balance sheet compared to June 2019. Loans to customers (gross) fell 1,3% and deposits decreased 2%.

Credit to customers of 12,4 billion euros, however, increased 1,4% compared to the end of 2019, “reversing the trend observed in previous quarters by benefiting from the rise in credit in the corporate segment”, the statement says.

“Customer deposits totaled 12,4 billion euros, benefiting from the evolution of overnight deposits which increased 10,3% compared to the same period in 2019, essentially due to the performance of the private segment”, reads the note.

The drop “shows the decrease registered by some institutional clients, on the one hand, and the increase observed in the private and SME segments, on the other”, says the bank.

As of June 30, 2020, total assets fell 4,3% to 17.882 million "reflecting the decreases in the loan portfolio and deposits with central banks, on the one hand, and the rise in securities investments, on the other".

The bank has as a positive note the fact that in the first half of 2020 the credit granted to companies registered an increase of 329 million, “realizing the ambition to increase the volume of business with SMEs and middle market companies through dedicated Group structures: Banco Montepio's commercial network and BEM ”.

Montepio ensures that “the favorable evolution of credit to customers recorded in the first half of 2020 was achieved in compliance with a prudent policy in the assumption of credit risk, which, in addition to a set of measures that were implemented in the areas of monitoring and recovery contributed to an improvement in the quality indicators of the credit portfolio ”.

Thus, in terms of the quality of the loan portfolio, assessed by the proportion of non performing exposures (NPE) over total credit, there was a favorable evolution in the NPE ratio, from 12,2% on December 31, 2019 to 11,9% at the end of the first half of 2020 (and also favorable compared to June 2019 when the ratio was 14,7%.

“In the first half, as a result of the update of the macroeconomic scenarios due to the pandemic determined by Covid-19, a significant reinforcement of the impairments related to the loan portfolio was made, which contributed to the reinforcement of the NPE coverage by impairments”, announces the bank .

Thus, the coverage of NPE by impairments increased from 52,1% at the end of 2019 to 58,4% on June 30, 2020. But including, in addition to impairments, also the collaterals and associated financial guarantees, the coverage of NPE rises to 89,8% at the end of the first half of 2020.

But the cost of credit risk has worsened, from 0,7% to 1%.

Equity fell 6,4% to 1.359 million euros, reflecting the negative results for the semester. “The variation recorded in equity also shows the impact of exogenous factors, translated, namely, in the evolution of the foreign exchange reserve and the fair value reserve, in this case also due to the realization of capital gains on the sale of securities, which, together, contributed a decrease of 39,9 million in the first half of 2020 ”, explains the bank.

“With reduced materiality, a positive actuarial deviation was also recorded in the Pension Fund of 5,3 million and the“ Finibanco Valor Invest 2010 ”issue was reclassified to liabilities by the amount of 6,3 million following the decision of the General Meeting held last June ”, the note reads.

The capital ratio is the weak point in the semester's results. The best quality capital CET1 fell from 13,7% to 11,5%, and is already benefiting from the flexibility of the capital pillows decreed by the regulatory authorities. The total capital ratio, at the end of the first half of 2020, stood at 13,5% “benefiting from the positive effect of the issue of subordinated debt in the amount of 50 million euros and the entry into force of Regulation (EU) 2020 / 873 of the European Parliament and the Council, of 24 June 2020, which more than offset the reduction in results observed in this quarter ”, explains the statement.

Risk-weighted assets (RWA) decreased by 125 million at the end of the first half of 2020, compared to the amount determined on March 31, 2020, “as a result of the balance sheet management that has been implemented and also due the entry into force of the aforementioned Regulation, namely at the level of the adjustment factor for exposures at risk to small and medium-sized companies ”.

“The capital ratios as of June 30, 2020 also incorporate the exogenous adverse effects brought about by the Covid 19 pandemic when determining unfavorable impacts in terms of the devaluation of the kwanza and the Real, and also the negative effect determined by the evolution of deferred tax assets ”, Explains the bank.

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