Over the last few years the financial environment in Portugal has evolved positively, achieving most of the goals that had been set out in the 2011 Financial and Economic Adjustment Programme. Troika’s programme has been successful in stabilising the banking sector, improving the state of public finances and deleveraging bank balance sheets. The result has placed Portugal back on the path of economic recovery and allowed for the departure of the Troika last May.
Furthermore, interest rates and spreads have fallen significantly, which has been good for the economy as a whole. In general, Portuguese households continue to be quite conservative and growth in deposits has been low, as interest rates remain at around one percent or below.
Products in Portugal that were not that significant a few years ago are now gaining strength and weight within household balance sheets
“Nevertheless, fortunately over the last four years there has been growth in deposits, despite the problems that we had a few years ago. Deposits have increased slightly, but the major trend has been that insurance products have grown significantly”, Raul Marques, CEO of Banif Banco de Investimento told World Finance. Mutual funds are also gaining strength, together with the diversification of household balance sheets in regards to assets.
Planning ahead
Arguably, the most relevant change in Portugal’s financial industry is the change in social consciousness in regards to pensions. People are now more aware about their retirement needs and the steps that must be taken early on in order to prepare for the future. As such, households are now investing more in other kinds of private products in order to compliment the pension package that they will receive from the state. “I think that people are planning their retirement more and more, they know that they have to not only invest in short term bank deposits, but also in long term products”, said Marques. “Products in Portugal that were not that significant a few years ago are now gaining strength and weight within household balance sheets.”
People in Portugal are thus saving increasingly with a 10 or 20-year outlook and a greater focus on risk control. They are also keeping multi-asset diversified funds or using specialised funds within multi-asset portfolios. “With interest rates where they are, it’s natural that money markets and fixed income funds will lose a bit of weight in the overall structure of the industry”, said Marques. This is resulting in a growing popularity of equity funds, as well as structural trends in Portugal’s banking sector.
Renewing models
As well as honing in essentially on a small family of multi-asset funds and risk control, Banif is also investing in a renewed and strengthened advisory model for client portfolios. “This also involves giving more information about performance attribution to our clients, whether they are individual, institutional or corporates – so explaining what is being done, helping them to understand the risks and keeping the volatility of these products within the boundaries that have been established”, said Marques. Banif’s new advisory framework forms part of its long-term strategy to accommodate for the changes that are transpiring within Portugal’s financial industry.
“Mid-tier companies are making more assessments and engaging more so in capital markets, so I think there will be a move towards more usage of capital markets by companies; this will also remain the focus within financial groups and a key goal of most banks in Portugal.” In addition, there will be an expansion in the services available, together with an increase in fees, thereby adding value considerably. This is also expected to encourage clients to consider the long-term basis of their investments and to be less swayed in accordance to the swings of the short term.
New capital requirements stipulated by the European Banking Authority and the Bank of Portugal are leading to more successful transactions and creating a more robust industry. In conjunction, financial institutions in Portugal are making the necessary changes to offer safer, long-term products to their clients, such as Banif, which is currently pouring resources into structural changes and the revitalisation of its offerings. “The fact that we’ve received the award from World Finance for the Best Investment Management Company in Portugal for three years in a row shows our strength and that we have a good future ahead”, said Marques. “We are doing the right things in the interest of our clients and doing so with the best professionals in the sector.”
