I would first like to thank Mr Coutinho Nobre Miguel, Chairman of Banco Sol, for his invitation to take part in the celebrations of the bank's 12th anniversary. It is a great honour.

In these 12 years, a bank that began with an innovative microcredit programme and five employees has grown into a universal bank with 1,100 workers and 132 branches. I would like to congratulate the Chairman of the Board of Banco Sol on the road travelled, successes achieved, value created and the significant contribution that they have been making to the progress of Angola and its banking system. I am also pleased and honoured to see the President of Banco Nacional de Angola, Manuel António, the Chairman of the General Meeting of Shareholders, Mário António, the President of the ABANC, Azevedo da Silva and the distinguished bank presidents and managers here today.



Once, when I was teaching Strategy at a university in Porto, I started with the following concepts, which are basic but still worth remembering now and then:

Slide 3
1. A country's main challenges are always development (a work of generations) and staking out its place in the world.

Slide 4 
2. Countries' main goals are to create wealth and wellbeing, and that requires a good society, a good economy and a good political environment.

Slide 5
3. A country depends on:

  • governability (based on a strategic national vision and concept, sound institutions, social cohesion and political stability);
  • an efficient society (based on culture, values, attitudes, behaviour, self-esteem, motivation, education, organisational ability and entrepreneurship);
  • sustainable economic development (requiring macroeconomic stability, sustainable debt and a development strategy that includes reforms for improving the business and especially the investment environment);
  • a sound, stable financial system that can finance the economy and foster inclusive growth.


Slide 6
This last point is very important.

So what determines economic growth? Growth requires knowledge (a national knowledge system that includes education, training, innovation and R&D), a favourable institutional framework (based on values, relationships of trust, social capital open to dialogue on the rules on economic activity) and especially business ability and entrepreneurship, partly stimulated by a favourable environment. Inclusive growth aims at wealth distributed with a concern for social justice. Angola has enviable development potential, as we all know.

In a recent speech at the Angola Business Forum, Abraão Gourgel, Minister of the Economy, said that there was a clear vision of the strategic goal of diversifying the Angolan economy. Strategic development of the Angolan economy means pursuing three fundamental objectives:

– increasing non-oil-based wealth, promoting employment and improving foreign trade in goods and services.

The minister drew attention to the key principles for speeding up economic diversification, which are balance with macroeconomic goals, investments based on Angola's comparative advantages, a central role for private enterprise and a dynamic business sector, state promotion of the right conditions and integrated development of clusters, to eliminate constraints. He said, "Funding of the economy is still incipient, which causes limitations at two essential levels. On the one hand, it restricts aggregate supply when companies are unable to finance their investments or operations and on the other it limits households' demand not only for consumer goods but also more structural goods, such as housing or education, while also slowing down growth in people's standard of living.

Conveying the idea of insight and vision, a diversified economy is critical to the creation of sustainable economies and the ability to finance it is absolutely vital.

Entrepreneurial capacity involves investment capacity and a need for funding. This means that another decisive factor of development is a strong, modern, trustworthy banking system.

I'm going to focus on some considerations, which everyone knows but sometimes seem to forgot. It is essential to explain and underscore them.

Slide 7
In addition to their job of providing the public and economic and institutional agents with secure, reliable payment systems, banks play an irreplaceable role in their basic mission of intermediation. In other words, the banks' responsibility is to manage resources in general and their customers' deposits in particular and invest them efficiently to finance households, companies and institutions for the sake of the economy, growth and people's wellbeing. This means that the banks channel the savings that they accrue to those who have business acuity and a will to invest or spend to improve their quality of life.

I'm sure that everyone here will agree that the financial system plays an essential role in making the most of opportunities arising from Angola's economic and social growth potential.

Assisting private, business and institutional customers with high-quality services that focus on their needs and ensuring their loyalty via relationships of trust are the essence of successful banking.

Banks give their customers access to banking services that make their everyday lives easier, facilitate payments and financial transactions, assist SMEs by funding infrastructures and private finance and help businessmen and individuals take and manage risks so that they can grow fast. All these functions are essential to the efficient operation of a modern market economy.

The degree of interconnection between the financial sector, the economy and society explains why the health of the financial sector has an undeniable impact on the economy and society.

It is quite correct to talk about the health of the financial sector as the banks are the heart of the economic system. Their beat is vital to the wellbeing of the public, companies and institutions. If we have low blood pressure we feel weak and if the banks have liquidity problems they don't inject enough money and the economy suffers. If we have high blood pressure, we run the risk of a stroke and if too much credit is granted without proper risk analysis, this results in unsustainable debts and the risk of insolvency. If we suffer a big shock, our heart almost stops, as we feel unsafe and unsure, and if the banks are called into question, this reduces their credibility (rating) and efficiency.

A stable financial system and sound, strong financial institutions condition growth and economic and social development.

After the crisis that the international banking system (United States and Europe) experienced, which required major state intervention, some important questions have been raised. What are the priorities of the reforms and how fast should they go? What will the new financial system be like after the financial reform has been completed? What is the banking system's role in it? What will the new business models be? What will banking's new ethics be? What will its communication strategy be?

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In short, the important thing is to ensure a strong, modern, reliable banking system, which means:

a) well-capitalised banks,
b) solid balance sheets,
c) access to funding on favourable terms,
d) clear, coherent business models,
e) good governance,
f) strict risk and compliance management,
g) appropriate technological benchmarking,
h) friendly relationships with customers via transparency and good practices,
i) internal and external communication that helps build a relationship of trust with the public.


The banking world in general and that in Europe and the United States in particular is going through a veritable regulatory, technological, behavioural and governance revolution, which, together with the progress of the economy is bringing about significant changes in banks' business models.

This tidal wave began five years ago, when the unthinkable happened. After the American government nationalised Freddie Mac and Fannie Mae and bailed out AIG, one of the world's largest investment banks, thought to be too big to fail, Lehman Brothers then collapsed.

Slide 9
The international financial crisis that followed generated anti-bank sentiment, as the banks were considered to be to blame for the crisis and its form. And we have to admit that the financial crisis triggered by sub-prime loans in late 2007 was partly the result of excesses in risk assessment, financial speculation and high amounts of toxic assets in many banks. Bank crises are almost always credit or impairment crises.

Quickly (some might say too quickly) there was a broad consensus on the causes of the crisis and the corrective measures to be taken. They included:

  • financial institutions should be smaller and less complex;
  • markets should be more transparent;
  • the work of rating agencies should be reviewed;
  • regulatory loopholes should be closed;
  • financial products should be less complex.


Slide 10
There have been a number of international initiatives in this area, such as the measures taken by G20. The European Union took a clear lead in the process. The initial response included measures to shore up the economy and prevent a deeper recession and intervention to ensure financial stability. State aid for financial institutions was used in the form of guarantees and investments in share capital increases, which in the end were contributions from taxpayers to strengthen or save banks. Measures were taken to reinforce regulation, supervision and monitoring of banks.

A strong, sustainable financial system requires preventive measures to guarantee sound banks and their effective supervision and monitoring.

The former are designed to make the banking system sounder with stronger balance sheets via capital, liquidity and leverage requirements for the financial sector. The latter are designed to make the European system more transparent and its supervision stronger so that financial institutions are more directly monitored and reduce their insolvency risk. The aim of prudential supervision is to safeguard banks' soundness and, indirectly, to boost customer confidence. Behavioural supervision aims at consumer protection, good practices, good governance and ethics in banking.

This substantial set of new rules, requirements and practices is greatly changing how banks and the capital markets operate and Europe is playing a leading role here.


A lot of work has been done at international (especially by the Basel Committee), European and national level to bring the financial system to a “sounder, safer place”.

I would like to sketch a picture of the fundamental pillars of the new institutional framework of the European financial system. Many aspects are specific to Economic and Monetary Union, but most of them are more widely applicable.

Because the new framework is not only the result of the 2008/2009 financial crisis, which affected the whole world and was exacerbated by the European sovereign debt crisis that followed, but also of deficiencies in the Eurosystem's institutional framework, I would like to make some initial remarks.

Before the global financial crisis, sovereign debt issued by EMs in the Euro Area was generically regarded as a default-risk-free asset, even though yields varied on the basis of the risk spread of each member country against the German bund.

The global financial crisis woke investors up to the real risk of default from some Euro Area countries as they were unable to issue more currency to honour their commitments (since the introduction of the euro, only the ECB can issue currency).

Growing realisation of these risks was triggered by Greece and a scenario in which the countries in question increased their borrowing to sometimes unsustainable levels.

As I said before, in some cases, the need for this borrowing had to do with other needs: dealing with the effects of the financial crisis, assisting and injecting funds into a domestic banking system severely hit by the subprime crisis, the real estate bubble, poor risk management by banks (e.g. Ireland and Spain) and toxic assets on their balance sheets.

Slide 11
In other cases, excessive borrowing was due to governments' poor fiscal policy and a commitment to highly leveraged growth policies leading to a drop in sovereign ratings. The slide compares the situation in a number of European countries. At the same time, even though their banking systems were quite resilient, they eventually felt the effects in the downgrade of their ratings and lack of access to or rise in cost of funding on the wholesale (interbank and capital) markets. Portugal and Greece are examples.

At the same time, these countries' difficulties in accessing the international finance markets meant that they had to resort to domestic credit institutions to place their sovereign debt.

Here, their banking systems suffered even more due to the loss in balance-sheet value of their sovereign debt assets and the resulting impact on their solvency.

Interconnection of risks has appeared in a scenario of fragmentation of Monetary Union, where there are supposed to be uniform conditions in all member countries and in national supervision and the rules governing it. These rules are set out in different laws and regulations, which results in different degrees of strictness and transparency in the analysis.

Europe's financial integration process, which has been under way since the formation of Economic and Monetary Union and more intensely in the Eurosystem, has not only slowed down but actually moved backwards in the crisis that has lasted five and a half years.

Reality has shown that Monetary Union is fragmented and each member country is subject to its own monetary conditions – liquidity, interest rates, credit conditions, which are much more demanding in the countries affected most by the sovereign debt crisis. For example, the interest rate charged to companies in Portugal was much higher than in Germany in June 2013 and interest rates on new loans to non-financial companies in Portugal were, on average, 340 basis points higher in Portugal than in Germany –5.5% against 2.1%).

It is in this context that we find the countless measures being taken and developed for a new framework for the European financial system. They involve, I repeat, a regulatory tidal wave, technological advancement and a behavioural and governance revolution for banks and will result in changes to the business model.

Slide 12 e 13

The next  slides give an idea of the major changes currently under way and set out in directives, regulations and decisions, laws that are being prepared in Europe and elsewhere. Bank regulation and supervision (capital, liquidity and leverage requirements, construction of the banking union, initially with the Single Supervisory Mechanism and Single Resolution Mechanism, a new reporting framework, new rules on parallel banking, etc), financial markets (MiFID, EMIR, etc), new directives on home loans and consumer credit, behavioural measures (aimed at consumer protection, transparency of commissions and financial education) and creation of single European payment area (SEPA), and a number of measures in the field of corporate governance, executives' salaries, compliance and taxation are examples of the intense work being done.

Slide 14
Of course, I can't go into all these matters in detail now, but the most important are:

Slide 15

  • the upcoming entry into force of Basel 3 and its transposition to Europe in the new Capital Requirements Directive and Regulation (CRD 4 and CRR), where the new regulation will pose new challenges to the banking sector in terms of capital, liquidity and leverage ratios
  • the Single Rule Book, i.e. the institutionalisation of common guidelines and standards for all EU members for implementation of the CRR and CRD 4 to facilitate a level playing field
  • banking union, with its three pillars: the Supervisory Mechanism, the Single Resolution Mechanism and the Common Deposit Guarantee Fund
  • the Crisis Management Dossier, including recovery and resolution plans for financial institutions and bail in mechanisms
  • the Liikanen Report, the European replica of the Volker and Vickers Reports, which identifies the need for and ways of profoundly restructuring the European financial system

Slide 16

– The Financial Markets Dossier covers a wide range of matters.

In spite of this fragmentation and the crisis that has lasted for five years, the euro is still, more than ever, the second currency of reference in the international monetary system. The important thing is that, as a whole, the European Union is still the largest economy in the world, with 26% of the global GDP (United States 23%, China 9% and Germany individually 4%) and it has kept its 20% share of the global market, as opposed to 13% for the United States and 9.5% for Japan. If we look at the debt/GDP ratio, the EU's average percentage is 82.5%, much better than the United States' 103% or Japan's 230%.

Slide 18

The highest ranking countries with the lowest sovereign credit include eight EU members – Sweden, Norway, Finland, Denmark, UK, Germany, Austria and the Netherlands.


Where technological change is concerned, we all know the extraordinary role that IT played in the modernisation of banks. It involved platforms and new applications that often made the difference in the market, the provision of innovative services to make their customers' lives easier and sharing and collaboration between institutions with important synergies and economies of scale.

This use of information and telecommunications technologies will increase substantially in terms of means of payment, bank reporting and product development. The Portuguese banks are working on new initiatives in the field of e-banking and e-mobile, social networks and their security. Bill scanning and desktop and tablet fund transfers are being developed.

The banks will be looking for important competitive advantages via innovation, anticipation and collaborative investments, i.e. shared between institutions.


Slide 19
There are three main concerns here:

a) transparency and ethics in banking

b) consumer protection

c) good governance


Regulators, governments and banks are undertaking countless initiatives to achieve these goals.


The CRD IV/CRR package, aimed at increasing transparency, obliges banks to disclose profits, taxes paid, turnover, number of employees and public subsidies in each EU country.


There have been a number of developments in consumer protection, focusing mainly on (i) responsible lending, (ii) default management and (iii) financial inclusion.

  1. Restrictive, limitative measures - In a setting of default risks, a number of initiatives appeared to regulate banks' conduct when managing defaults on personal loans. The banks were obliged to encourage negotiation and endeavour to prevent defaults and settle out of court.
    Although banks are free, on the principle of contractual freedom and private independence, to set the price of their products and services in the form of interest or commissions, efforts have been made to regulate commissions on bank products and services, including harmonisation, to enable customers to shop around. This has had a negative impact on the banks' operating income.
  2. Obligation to provide information
    There are two important aspects of information:
    - Information for bank customers on commissions on products and services
    - Comparability, so that the information is standardised to facilitate comparisons
  3. Financial education– it is essential to foster a greater financial culture leading to better use of financial products and services so that consumers can make informed, responsible decisions. The topics addressed include:
    - Management of the household budget
    - Means of payment
    - Savings
    - Loans
    - General funding of the financial system
    - Prevention of financial fraud
    2012 OECD study “The Status of Financial Education in Africa”.



Corporate governance is extremely important for banks, as shown by the recent financial crisis.

There are different governance models in banking. The one-tiered and two-tiered systems are used most, when the shareholders are diversified and they both have different possible formats. The composition of the Board, number of members, executive and non-executive (independent) directors, specialisation profiles, relations between CEO and Chairman, if these two positions exist, creation and remits of delegate committees, such as audit, compliance, risk, strategy, organisation, assessment and remuneration committees, etc, must be part of the corporate bodies' rules and regulations.

The European authorities recently approved legislation limiting salaries in banking, particularly variable, short-term remuneration.


Slide 20
All the current alterations are aimed at a stronger, more sustainable, reliable and trustworthy banking system. The measures have undeniable short-term though mainly medium- and long-term benefits.

Slide 21
The banking sector comprises banks of various types, with different business models, legal forms and ownership structures (share capital).

In addition to the largest commercial banks and retail and investment banks, which engage in a broad mix of banking activities, there are specialised institutions with different ownership structures – state-owned, cooperative and savings banks.

This wide variety of banks is, in itself, a strong defence against financial shocks, as different types of bank react differently to specific events. Having large and small, domestic and foreign, universal and specialised banks means a more secure banking sector. There are banks that combine many different activities and others that specialise in a few.

Bank's business models are thus linked to the scope of their activities and their funding strategies.

If we focus on retail banking, we find the following trends. Banks' business model will undergo substantial adjustments resulting from adaptation to the new market circumstances. We can see some trends particularly in European retail banks:

The banks will first focus on funding, as deposits are the banks' 'fuel', quality of assets, control of impairment and capital consumption. They will seek “operational excellence” by increasing earnings and reducing costs.

Their management will focus on five main concerns:

  • high management, high-touch (customer relations), high-tech, high-service e risk-control.


The trend towards innovation and simpler financial products, in this area and in services will continue, though there will also be banks that, in response to market needs, will specialise in complex products.

There will very likely be a reduction in the number of branch networks in Europe, which will result in an increase in multi-channel distribution and use of electronic, online and mobile payments. There will be more demand for call centres. In countries like Angola, however, increases in bank usage and economic and social development, will lead to substantial growth in the number of branches, ATMs and POSs. Institutions' organisation will be optimised and motivational leadership will be the greatest trump card for improving efficiency.

Training and retraining will have to be stepped up, as the ongoing changes require new knowledge and preparation and many employees will change their specialisation. Management of talent, motivation and internal communication (and between staff in different teams) will be increasingly important.

Banks' governance will be the subject of greater scrutiny by regulators, shareholders, employees and other stakeholders and greater attention will be devoted to codes of practice and conduct, while the banks themselves will be concerned with supporting and defending their customers.


Slide 22
As we know, economic growth depends on funding of investment from savings and finance.

In short, capital, credit and the capital market are the cornerstones of economic growth. But the need for banks to conduct a prudent, thorough risk analysis means that companies must have healthy balance sheets more appropriate to self-finance.

In addition to granting loans, banks are important partners in the capital markets, investment funds, restructuring of companies, venture capital companies, often in their share capital, and taking investment units in funds. Hybrid instruments can also be used to recapitalise companies, along with subordinated debt for SMEs.

But there can be no doubt that loans are the preferential, most widely used instruments (accounting for 75% to 80% in Europe) for financing the economy and companies. There are two particularly important factors here: a) the price of credit and b) credit risk assessment. This assessment must be prudent and thorough, though it is important for there to be an appetite for and not aversion to risk. The price of credit depends on several factors, as we know: cost of funding, cost of capital and risk.

When it comes to adjusting the price of credit to risk, many techniques and instruments have been developed to assess and optimise risk.


a) Operational overview

Portuguese banking can currently be characterised as follows:

  • Funding and liquidity - The situation is comfortable. Deposits account for 42.5% of funding and private deposits have been growing constantly. Capital and recourse to ECB finance account for around 10% of funding each. The transformation ratio (credit/deposits) is on target at 120%.
  • Solvency - the banks have the best capital ratios ever. The Portuguese banks are well capitalised. Their capital has been reinforced to reach Core Tier 1 ratios of 11.5% and solvency of 12.6% on 31.12.13, which exceed the capital requirements set out in Basel III, European Union standards and the requirements of the BdP and Adjustment Programme.
  • Return - this is under serious pressure. The narrower net increase income, increases in provisions and impairment (due to the economic recession and rise in the default rate), the increase in the cost of capital and taxation and the costs associated with the new regulations have resulted in the banks reporting losses in 2011 and 2012. And 2013 is expected to be another year of overall losses. ROE fell 4% in 2012. The banks' level of capital enabled them to absorb these losses, but the banks are taking measures to reduce costs, recover loans and increase earnings in order to show a positive return in 2014.
  • Credit - it has naturally gone down. After strong growth in loans between 2000 and 2008, it continued to increase at a rate of 2.7% between 2008 and April 2011. The recession and the banks' deleveraging between May 2011 and June 2013, which was done very efficiently caused a 7.1% fall in loans, representing 54.5% of the banks' assets. The fall in credit to companies particularly affected SMEs (with hardly any effect on larger businesses).
    The factors that most influenced the drop in loans were, on the demand side, a reduction in gross fixed capital formation, in public and private spending and the recession. On the supply side, were the weakness of the SMEs (weak balance sheets and inadequate debt-to-equity ratios), information asymmetries, with financial companies showing a debt cost of 6.9%, a financial debt ratio of 57.5%, low return on equity and increases in doubtful debts and default rates. As I have said, the cost of credit is also higher than in the countries in the centre of Europe. There are, however, countless solutions in place to facilitate financing the economy.


b) Regulatory overview
Significant regulatory changes and closer prudential and behavioural supervision have been a great challenge for Portuguese banks. They are to be congratulated on their preparation and performance in the face of ongoing changes.

The sector is the most scrutinised, regulated and supervised of all economic activities. The economic and financial crisis that we went through led to the implementation of new and existing instruments to ensure that institutions were sound and issued balance sheets that truly reflected their assets.

As a result, they regularly undergo stress tests, special inspections by regulators, extraordinary external audits under the command of supervisors and mandatory bank contingency, resolution and restructuring plans. The aim is transparent, truthful balance sheets.

c) The banks' image
Transparent, effective, informative communication is essential. It is commonly accepted that banks' success depends mainly on four factors: knowledge, technology, innovation and communication.

The banking sector has always been the subject of controversy for good and bad reasons. Its image depends on the banks' ability to convey accurate, transparent, reliable information.

There is a vital need to improve banks' external and internal communication in order to increase familiarity with the sector, its missions and situation, increase proximity and improve the relationship of trust with customers and the public and contribute to their financial education.

The Portuguese banks are cooperating actively in financial literacy programmes, along with the regulators (BdP, CMVM and ISP) and provide information and clarifications that contribute to responsible decisions by customers and the banking sectors good image.

Over the years, this has been a strategy of the Portuguese banks with specificities. Their internationalisation began in the late 19th century and the aim at the time was to assist the Portuguese communities abroad. Later, this strategy was complemented to assist exporters, Portuguese investment abroad and companies from those countries that wanted to do business in Portugal.

Finally, internationalisation includes the Portuguese banks' contribution to the development of the banking sector in other countries.

Two Portuguese banks are present in 23 countries, with others in a smaller number. Most of the latter investments are in the European Union, Angola, Mozambique, Cape Verde, S. Tomé, Brazil, Macao and China, East Timor, Venezuela, Colombia and Mexico. Most of the former are in the United States, Canada and North Africa.


Slide 28
In spite of the economic and financial crisis that the world has been experiencing, and recognising that no-one is immune to its consequences, Angola, a country with undeniable, enviable growth potential, has been implementing a development strategy with significant results, making it increasingly attractive to investors, as there are many business opportunities.

Political stability, governability, macroeconomic stability, institutional reinforcement, reforms to improve the business environment (in many different areas) and the safety of people and property are making a decisive contribution to this. Angola's banking system has been playing a fundamental role in the entire process.

We must highlight the central bank's performance and the commercial banks' response to the business opportunities.

Portuguese banks have been collaborating actively with Angolan banks. The Angolan banks in which Portuguese banks have shares have been making a good contribution to the country's economy, especially in several years when the situation was much more difficult.

In Portugal too, the presence of Angolan capital in a number of banks (Millennium, BPI, BIC, BAI Europa and BPA Europa) is very important to the system.

This important collaboration includes, but can be extended considerably:

  • Close cooperation between the central banks of the two countries
  • shareholdings in banks
  • use of know-how of payment systems
  • the sharing of know-how
  • bank training
  • financial education.


Banks' efficiency and profitability depend on professional skill and ability to be competitive.

This means that their managers' qualifications are vital. Ongoing training, specialisation and post-grad studies are essential elements of banks' human resource policies. The collaboration of the ISGB and IFB with African countries since 1991 has intensified. It has been fruitful and highly positive. It is bringing levels of competence closer and helping institutions to work even better.

The Integrated Bank Management Course is a very important feature and a success story. The IFB is a tool for the banks and a generator of value and skills.


Fernando Faria de Oliveira,
President of the Portuguese Banking Association
Luanda, 2nd October 2013