Crédito Agrícola Group Operations

Transcription

1 Crédito Agrícola Group Operations

2 36 1. MAIN AREAS OF OPERATIONS 1.1. COMMERCIAL OPERATIONS Despite the extremely unfavourable climate of the times, the Crédito Agrícola Group came in with positive results, while holding to the policy followed in recent years to bolster its prudential provisions so as to bring about the financial consolidation of the institution. The current state of the Portuguese economy has placed complex challenges on credit operations. The risks associated with them have had to be assessed and this has led to a considerable reduction in the opportunities for the expansion of business based on an acceptable level of risk. The Group has, in fact, a comfortable liquidity position, but the need to comply with Banco de Portugal recommendations on Tier 1 capital for solvency purposes led to pressure on the expansion of credit at the Caixa Central and this, towards the end of the year, cut down the leeway for growth of agency credit. In tandem, much as in 2008, raising funds was hampered both by the current economic framework, with weak growth in nominal GDP, leading to smaller growth in overall savings, and by the aggressive commercial approach of other banks in the rates being offered for deposits. It is well-known that most credit institutions in Portugal, the Crédito Agrícola aside, have high funds/credit transformation ratios, and it is natural that this will colour their policy on garnering deposits. In terms of customer funds, the aim was to maintain the dynamism in placement of off-balancesheet products, given its importance as a way of cementing customer loyalty, especially when traditional products are not competitive. These products, moreover, have the potential to generate commissions and therefore push up the complementary margin. Commercial operations were also bolstered by the fact that the network grew during the year, rising from 670 branches at year-end 2008 to 682 a year later and also by the fact that new complementary business channels also came on stream. This set of factors also had an impact on SICAM operations, as can be seen in the following indicators, which give an overview of the situation:

3 37 Sicam Balance Sheet figures in millions of euros Abs. % ASSETS (net) 11, , % of which Customer credit (net) 7, , % of which Funds held at credit institutuions (net) 1, % LIABILITIES 10, , % of which Customer funds 9, , % of which Funds from credit institutions % OPERATING INCOME % Consolidated net assets at SICAM rose to more than 12 thousand million euros, a year-on-year rise of 5.7%. Loans to customers rose by 5.8% (gross), corresponding to 486 million euros, translated into net figures of 5.6%, which is 446 million euros. Customer loans accounted for 6.4% of net assets, fundamentally unchanged; other headings, however, moved in ways that led to considerable changes in the structure of the balance sheet. On the liabilities side, the dominant figure is still customer funds, coming in at 90.8% of the total (10,070 million euros). Funds from other credit institutions excluding central banks also still hold a relatively minor position, standing at 5%. Looking at total liabilities and own funds, customer funds are at 83.3% of the total at year-end, compared with 84% a twelve-month earlier. This relative fall can be explained by the greater recourse to repo operations with other institutions carried out by the financial department of the Caixa Central as part of their proactive treasury management policy. The move in SICAM s operating income has remained positive, up 2.1% on the year, at around 20.6 million euros. This brings the overall figure to practically 1,000 million euros. On top of this, again similar to 2008, the rate of growth for loans to customers (5.8%) was again higher than the growth in funds coming in from customers (4.8%), leading to a rise in the transformation ratio from 87.1% in 2008 to 88% a year later.

4 38 Figures in thousands of euros, except percentages Abs. 09/08 % 09/08 Customers funds 9, , % 4.8% Credit to customers 8, , % 5.8% Transformation ratio (%) 87.1% 88.0% 0.9 p.p. If, however, application in commercial paper is excluded, then the situation is the opposite of what happened in 2008, with customer loans higher, at 6.8%, and the transformation ratio moving from 81.8% in 2008 to 83.4% in The figure therefore remained quite conservative. Deposits in fact are still far larger than loans, which means that SICAM balance sheet liquidity is still strong, as witnessed by its position in terms of placements in other credit institutions (deposits and debt securities) and in public debt Deposits and other funds Customer deposits at SICAM came in with solid growth, in spite of the smaller pace of growth in the economy and the climate of recession which has set in, along with the relentless interbank competition to attract funds and the fact that traditional deposits have lost their shine because rates are so low. The growth was 4.8%, bringing the total to over 10,000 million euros at year-end, another landmark in consolidated figures for the Crédito Agrícola. The growth was higher than in the banking system, which posted 2.8% overall. A number of factors came into play here, the first two fundamental: the commercial operations of the Caixas themselves, and the confidence they have maintained among local people. Along with these has come the impact of Group campaigns and other campaigns launched on the initiative of specific local Caixas.

5 39 Customer deposits Figures in thousands of euros, except percentages Abs. % Current accounts 2, , % Term and savings deposits 7, , % Charges to pay net % Funds on the balance sheet 9, , % The growth in deposits and savings products continues to be bigger than growth in current accounts. In terms of off-balance-sheet products, there was a 27.8% growth overall with investment funds, coming in at 42.2% and capitalization products at 21.9%. Off-Balance-Sheet Funds Figures in thousands of euros, except percentages Abs. % Investment funds % Financial Investment Funds % Property Investment Funds % Capital growth products (*) % Total , % (*) Total portfolio value. Gross premia issued in 2008 were thousand euros and in thousand euros In terms of funds, both property and securities, the growth was above the market average, the first at 10.7% and the second at 66%. The increase in F II was fundamentally on the back of subscription to units in the CA Fundo Património Cresente held by third parties and the launch of the CA Fundo Arrendamento Habitacional. The take-up illustrates the increasing popularity of this type of fund with customers and with the public in general. Part of the reason behind this upward move is the more dynamic approach to the sale of

6 40 intermediation products as a way to offset the squeeze on the financial margin involving traditional products and the commissions associated to them. Savers were also on the lookout for other places to put their funds. The structure of funds did not, however, change in any great way, in spite of the growth in offbalance-sheet funds, with traditional deposits accounting for for the largest proportion. Structure of Funds Current accounts Current and savings accounts Investment funds (financial) Investment funds (property) Offbalance -sheet Current accounts Current and savings accounts Investment funds (financial) Investment funds (property) Offbalance -sheet 68.6% 67.3% 23% 22.7% 5.9% 6.7% 1.1% 1.4% 1.1% 2.2% Moves in Credit Introduction: The risk function in the Crédito Agrícola The Group continued with putting into place the various components of the project to transform the risk function (Transformação da Função Risco). This scheme is made up of various components of different nature and size in the area of assessment and exposure to credit risk, forming however, a single coherent whole. The project began in 2006, the idea being that it would cover a number of years, ensuring Group compliance with the new regulations for the financial sector. The following are the most salient features that were begun, developed or concluded during the year:

7 41 The Impairment Model The bureau to assess risks is responsible for calculating impairment for the Caixa Central, while also monitoring the work carried out by the CCAM in this area. It undertakes an overall analysis of customer portfolios while focusing on specific customer operations with individual Caixas. Over the year, work continued on improving the tools and the calculation procedures, both in terms of the models used and carrying out the most efficient practices. Matching Own Capital to Risk Profile The tenor of Banco de Portugal Notice 15/2007 led to procedures for self-assessment of own capital quality, specifically through the in-house ICAAP application. The calculations and the stress tests undertaken (analysis of scenarios and sensitivity Banco de Portugal Instruction 18/2007) implied the development of new models for information management along with the relevant reports. All of this is not only mandatory in regulatory terms, but also involves the creation of important tools for strategic management. Solution for Proposals and Credit Scoring (SPCS) The purpose of the SPCS is to create a standard work flow for procedures relating to granting loans to individuals and small businesses, using a credit scoring model per segment. Three new models were introduced for credit cards and the first backtesting was carried out for scoring in customer credit. Management of Economic Groups and Risk A functional design was concluded for a data base devoted to management of economic groups and risk in SICAM. The aim of the tool is to bring integrated credit risk management to groups of inter-related customers, providing effective management of exposure limits, analyses of concentration and control and reporting of exposures that go beyond the regulatory limits defined as major risks. Internal Control System Work continued on structuring and developing an internal control system for the Group. Two projects are worth a particular note: one is to automate the function; and the other is to develop a support portal for reporting deficiencies and monitoring progress in resolving them. The risk management bureau is working in partnership with the DCO, the DAI and the DCIG to coordinate the Group s internal controls through the handling of information related to insufficiencies detected in the area. It then produces reports, in accordance with the regulatory requirements set out in Banco de Portugal Notice 5/2008. A number of major projects took big steps forward during the year, both in terms of the sizeable investment required and the anticipated impact on improvement to the quality of risk management at SICAM.

8 42 Among the projects, the following are worth a mention: Management Tool for Guarantees Received The purpose of this is to define a new procedure for recording all guarantees received as backing for Group credit operations with suitable characterisation and assessment ensured. During the year an emulation process was set up, as part of the Profile system, providing an analysis of all the features of current guarantees, enabling information to be corrected or completed. The management tool for guarantees is also itself undergoing developments and it should be live during the third quarter of Risk Support Infrastructure This is one of the major objectives to be reached by the end of 2010, the creation of a data repository that is adequate for the Group s risk function. During 2009, the technical specifications were finalized, the Datamart licencing was obtained, and work got under way on consultations leading to implementation of the IT solution. Market discipline report The year saw publication of the annual report to disseminate information on the main risk management policies and practices of the Crédito Agrícola Group (in line with the provisions of Banco de Portugal Notice 10/2007). Balance Sheet Unit At the start of the year, the single data repository was up and running. This brings together a large amount of economic and financial information relating to corporate customers and details actual or potential involvement. The application provides the back up needed for granting and monitoring credit and for the risk assessment model. This simplifies the systematic analysis of the financial details and brings consistency to the information and to its integration with other applications, among them the credit proposal workflow, the risk alert system, impairment and the rating model Credit The year saw a notable increase in credit operations, up 5.8% year on year, with credit to companies playing a major part in this (up 6.9%). Commercial paper operations were down, having risen the previous year, the fall being around 41 million euros. Leaving aside commercial paper, much of which is backed by guarantees from other banks and therefore represents fundamentally liquidity operations, credit to companies was up by 9% and total credit by 6.7%.

9 43 Customer credit Figures in millions of euros, except % absolute Variation relative Structure 2009 Customer Credit 8, , % 100.0% Companies 4, , % 49.9% Individuals 4, , % 50.1% Commitments to third parties 1, , % 100.0% of which irrevocable credit lines % 58.6% of which revocable credit lines % 36.6% Guarantees given % n.a. 1 Includes guarantees and endorsement of documentary credit for imports This growth stemmed from commercial operations in the Caixas and at the Caixa Central. In terms of commitments to third parties, there was a 2.8% rise year on year from 1,100 to 1,130 million euros fundamentally on the back of irrevocable commitments, which were up by around 18 million euros. As for guarantees given, there was an increase (contrary to the 2008 move), coming in at 14.8% overall. This can be explained by the underwriting of commercial paper, up by an absolute figure of approximately 40 million euros, and by the knock-on effect from the reduction in the value of guarantees issued the year before.

10 44 Credit by type of operation Figures in millions of euros except % Abs. % Mortgage Credit a) 2, , % Current Accounts With Restrictions % Commercial Discounts % Leasing % Credit Cards % Overdrafts % Foreign Exchange Operations % Commercial Paper % Financing Contracts b) 4, , % Income Receivable (net) % Deferred Income (net) % Customer Credit 8, , % a) The heading Mortgage credit includes the Crédito multiusos option (complimentary credit) b) Includes loans with different maturities There follows the most salient information in credit broken down by type of operation: In the case of mortgage loans, the proportion in the credit structure of SICAM was down marginally (from 24.8% in 2008 to 24.5% a year later), but the portfolio grew at a much faster pace than the banking sector as a whole (10.6% for the Group as opposed to 2.6% across the system). Many customers came in as a result of the multimedia campaign launched to promote the product, in a context where other institutions were reining in their activity, hampered by balance sheet constraints and by the interruption to securitization operations. The Crédito Agrícola has not needed recourse to such operations up to now, given its liquidity situation. These loans have great potential in terms of building customer loyalty, and the Group took full strategic advantage of the current crisis, where its own position is based on its comfortable liquidity and solvency cushion.

11 45 As in previous years, financial leasing was an operation much favoured by customers. More than 90% of the Caixas were involved in contracts of this kind on behalf of their customers (see the detailed information in ). The total financing in this field was 167 million euros, compared with 148 million the previous year (a 13.1% rise). Agency credit was again down, this time by 3.5%, and is steadily losing importance in the Caixa Central portfolio. Agency credit per type of credit Figures in millions of euros except % Variation Absolute % Mortgage * % Credit cards % Commercial discounts % Guaranteed current accounts % Financing % Leasing % Operations with foreign entities % TOTAL % * The heading Mortgage credit includes the Crédito multiusos option (complimentary credit) The move is happening in spite of a change in the commissioning system, which was brought in to make this method more attractive to the Caixas. Part of the reason behind the continuing shift is the fact that the Caixas have greater capacity now to offer credit, with the policy of mergers giving them more financial capacity; and part is also due to the fact that a growing number of Caixas are obtaining authorization to increase the scope of their operations. Leasing in fact was the only type of credit where there was a positive and growing move in agency operations: a 5.9% increase in 2009 compared with 2.6% a year earlier.

12 Companies There was a notable 6.9% rise in this segment, with a fall in credit through commercial paper (the biggest item to move in 2008), and very big growth in financial leasing (up 16.5%). Companies Figures in thousands of euros except % absolute Variation relative Structure 2009 Credit to Companies 4, , % 100.0% Current Accounts with Restrictions % 12.6% Commercial Discounts % 1.8% Leasing % 3.1% Financing 1 3, , % 82.5% of which commercial paper % 10.5% 1 Includes overdrafts and loans of various maturities, in euros and in foreign currency The number of current accounts with some form of restriction was virtually unchanged, an indicator of the greater rigour shown in granting this kind of credit. Commercial discounts fell by 12.8% as his kind of financing loses its appeal Individuals There was steady growth in this segment, which was up 4.7% year on year.

13 47 Individuals and micro-enterprises Figures in thousands of euros except % absolute Variation relative Structure 2009 Credit to Individuals 4, , % 100.0% Mortgage Credit 1 2, , % 52.7% Consumer Credit % 8.9% of which Credit Cards % 0.9% Leasing % 0.6% Other Credit 3 1, , % 37.7% 1 The heading Mortgage credit includes the Crédito multiusos option (complimentary credit) 2 Figures in terms of line, subline and purpose of the loan (including overdrafts) 3 Includes overdrafts, current accounts and loans with different maturities The move was fundamentally on the back of the growth in mortgage loans, up by million euros (4.7% higher), the result of promotional efforts as part of the more dynamic approach to network operations. Agency operations in the mortgage field are, however, down by around 5.8%, 12.8 million euros short of the 2008 figure. This is due partly to the overall trend, but also to the fact that there were transfers of agency credit to other financial institutions or to the Caixas themselves. Consumer credit was up by 3.8%, fundamentally as a result of increased use of cards (up 3.7%), though this form of credit is still only a small part of the total (8.9%), where the biggest slice is mortgage credit (52.7%). This is a situation common to the banking system as a whole Financial Leasing As already mentioned, this form of finance continues to be attractive to Crédito Agrícola customers for investment purposes, with only 6 Caixas not being involved in contracts in this area. A new product was launched in the second quarter of the year, called consortium leasing (Leasing em Consórcio) and this allows the Caixas to carry out such operations for the purchase of property for their customers. This can provide an alternative to a mortgage, and in fact the guarantee is stronger, given that the Caixa Agrícola becomes a co-owner (together with the Caixa Central), as a proportion of the value of the property fianced by them.

14 48 A number of associated Caixas have taken up this option, and the number of operations has been steadily rising. As already mentioned, the overall credit portfolio in financial leasing reached million euros at year-end, a 13.1% growth year on year. This can be broken down as follows: Type of asset Figures in millions of euros Variation 2008/2009 Portfolio Structure Absolute % Vehicles % 32.0% 30.7% Equipment % 32.8% 39.1% Property % 35.2% 30.2% Total % 100.0% 100.0% During the year, the consortium leasing mode came in with assets worth approximately 2.8 million euros. In terms of vehicle leasing where the individual Caixa has a greater role in the contract there has been an increase in this form of financing for light vehicles, coming in at 62% of the total portfolio. Financing in this way accounts for 30.7% of the total leasing portfolio at yearend, and grew by 8.6% during the year, although the car market plummeted. The biggest growth, however, came in the leasing of equipment, up 34.7% and accounting for 39.1% of the portfolio Electronic Forms of Payment Operations in this field continued to be strongly influenced by the change to the business model for forms of payment, with structural implications in the domestic market an impact on profitability on the commercial side. Another relevant factor relates to the potential area for growth in credit cards, bearing in mind the differential between our market share in debit cards as against credit cards. Among the operations that gave a spur to the growth of this business across several areas, the following are worth a mention:

15 49 New products Membership of MasterCard, with the aim of complementing the service provided by the Crédito Agrícola as issuer and in order to support the future Acquiring service; Development of the Business card for the Group companies and business segment, currently at IT structuring stage; The conditions were created for the pilot launch of a CONTACTLESS card, in partnership with SIBS and with most of the other issuing banks, with a Mastercard (debit) card and a Visa (credit) card. The pilot scheme will allow the Group to issue innovatory products with the focus on ease of use, leading to greater use of the cards for small transactions ( war on cash ), and also penetration in the market through the customer data base; The launch of Co-Branded cards for the Centro Cultural e Congressos de Caldas da Rainha, Santa Casa da Misericórdia de Pombal, Beira Sumos, Intermarché de Mirandela, CEVAL Centro Empresarial dos Vales do Lima e Minho, and Panike. New Services The Acquiring service is ready for launch. This means that traders can deal directly with the Group concerning conditions relating to customer payments with VISA and MasterCard, giving them scope to be more competitive since they will hold a bigger slice of the value generated by use of the cards. The aim of this service is to give greater penetration in the business segment. The trial run is undergoing tests and will be launched through the brand CA&companhia business segment with this line being renovated for the brand Rede CA&companhia. Development of co-branded partnerships The protocol with Pharma+ was extended, with preferential conditions defined for various services they offer, among them support for payment of prescriptions (Antecipação de Comparticipação de Receituário), support for treasury operations (Apoio à Tesouraria), support for investment in and purchase of properties (Apoio ao Investimento e Aquisição de Imóveis), and support for rehabilitation and modernisation of pharmacies (Apoio à recuperação e Modernização da Farmácia);

16 50 A procedure is under way for migration to CA&companhia (image migration) involving Co- Branded partnerships that are giving a higher return on cards placed (up to 5,000 cards) A strategy was defined for placing Co-Branded cards according to sector: CA&companhia Distribuição, Cartão Instituições de Solidariedade, Cartão Bombeiros, Cartão Santas Casas da Misericórdia, Cartão Educação and Cartão AEP. Summary of the main indicators Increase in the number of cards, specifically credit cards, where there was an 18% rise in the number of Co-Branded cards in circulation. This meant that the Group reached a market share of 4% in the number of credit cards in circulation and 11% for debit cards; 220, ,000 1% 80, , Number of credit cards 60,000 18% Number of cobranded cards The increase in number of transactions was 7% (credit cards) and 10% (debit cards); 75,000,000 4,000,000 70,000,000 65,000,000 60,000,000 7% Number of transactions 3,000,000 10% 2,000, Volume of transactions (thousands of ) There was an increase in the number of ATMs (the Multibanco system), coming in at 5% year on year, with a 10% market share for the Group;

17 51 Number of ATMs 1,400 1,300 Nunber of TPAs 15,500 15,000 14,500 1, Crédito Agrícola 5% ,000 7% 13, Crédito Agrícola 2009 More POS (point of sales) units were installed, and this service is still on the increase, the Pack CA&companhia bringing a market share of 6% Complementary Channels The year saw the start-up of a number of projects, and further work on some which had started in One of these was the reinforcement of security on the Homebanking channel with the launch of the SAF (Sistema de Autenticação Forte). This consists basically of providing an additional security tier and the definition of daily time limits. There was a substantial rise in the credit recovery service for individuals through the direct line service. New projects were also started to boost business and information on Group services through the range of complementary channels, targeting all the Crédito Agrícola Group and, above all, its customers.

18 52 It is clear that response to customer demand (in terms of new products and quality) has become a strategic concern for banks as a measure of whether they can rise to the new business challenges. This has led to constant pressure through the demand for new functionalities and the ever-broader base for the services being used. The following major initiatives marked the year: Reinforcement of credit recovery through the direct line service (call centre), at the request of many Caixas, to provide a response to this need and to increase recovrey; Start on the project to overhaul the contents of the CA Site, focusing fundamentally on separating customer segments individuals and companies, with a new web design, new search options, reorganisation of the whole structure, presentation of associate Caixa micro-websites, updating and validating all contents, integration of new market information and other developments; Implementation of an additional security tier (known as SAF), consisting of transmission of an SMS code for each transaction on line, with daily limits also introduced; During the year, additional requirements were defined, to be implemented during 2010, aimed at preventing fraud through the Internet. The end of the first half of the year saw the presentation of a pilot scheme was presented based on an innovatory concept, the Banking Kiosk. The project was put together as a response to the need for a space with a range of services and financial options in places where there are no CA branches. The kiosks must serve the needs of customers, allowing them to interact with their local Caixa; During the second half of the year, a wide range of new on-line functionalities was put in place, among them the possibility of setting up direct debits, all aspects of validation and provision of information through the DMIF, consultation of structured deposits and other improvements now available;

19 53 Towards the end of the year, there was a commercial campaign using various channels of communication, with the main aim being to build up the number of customers using the online service for individuals (On-Line Particulares) and the SAF scheme. The main indicators for each of these services over the year are detailed below. A) The Contact Centre (Linha Directa) This service grew by 9% in terms of inbound contacts. The number of customers in touch through the service grew by 11% year on year. 9% 11% 270, , , , Total inbound contacts Total customer contacts In terms of outbound operations, there were activities involving Caixa-based tele-collection for their own loans (involving 10 Caixas up to the end of the year), agency credit and credit cards. The results of these actions were 62% of customers recovered and 43% of amounts. This is an increase of 2% in the first of these, though there was a 9% falloff in the second in year-on-year terms. The fall stems from a considerable rise in the number of defaults (up 62% year on year). The last quarter, however, saw amounts recovered on the way up.

20 54 B) The Internet Banking Service On-Line B1) On-Line Companies There was a growth in the number of those joining the service, up around 57%, with a rise of 56% in active users (in year-on-year terms). 57% 56% 26,425 24,751 16,844 15, On-line companies total contracts On-line companies active participants The following table shows the move in volume (half-year figures) for the On-Line service. This rose by 35% in the second half of the year. On-line Total Financial Operations / Consultations 3,031,917 2,187, , ,551 1st half year Operations 2nd half year Consultations

21 55 B2) On-Line for individuals This service grew by around 14% in terms of registrations on the multi-channel system (Sistema MultiCanal). The numbers actively using the service were up by 26% year on year. 14% 158, ,075 68,474 26% 86, On-Line individuals total contracts On-Line individuals active participants The table below shows the half-yearly move in volume of transactions for the service, showing a 21% rise between the first and the second half of the year. On-Line individuals total financial operations / consultations 6,251,449 5,077, , ,774 1st half year nd half year 2008 Operations Consultations

22 56 C) The Balcão 24 Service This was the fifth year of operations since the launch and there were 197 branches registered, a 13% increase in the services set up over The network of Caixas that participate was down by 4% as a result of mergers during the year. 13% 195-4% B24 ATMs started up 2008 Balcão The number of transactions rose by 21% year on year, with the average number per month per individual (equipment) standing at 2,351. Year ,258, ,519 5,233,662 Year ,563, ,909 4,313,608 21% Operations Consultations

23 57 The table below shows the half-yearly move in volume of transactions for the service during the year, with an 8% growth from the first to the second half of the year. B24 - Total Financial Operations / Consultations 2,044,523 2,213, , ,157 1st half year nd half year 2009 Operations Consultations D) The Crédito Agrícola Site ( During the year, there were 7,485,269 visits (up 33% on 2008), representing an average of 625,000 visits/month, with 1,887,198 single visits. As result, 12,580,344 pages were seen, a rise of 24% over a year earlier, when the figure was 10,128,783). Below are the main indicators relating to the institutional site during the year:

24 58 24% 33% 38% 12,580,344 7,485,269 10,128,783 5,624,269 1,370,940 1,887, Visits to pages Number of Visits Visitors Number of visits / visitors The International Area, Emigration and Agencies Abroad The international area Operations on the international front were hampered by the economic and financial crisis, demanding permanent vigilance to minimise counterpart and country risk. In the last part of the year, the world economy began to show signs of recovery and new limits were defined for financial institutions, though guided always by caution in setting criteria. In terms of correspondent banks, it is worth highlighting the winning of new operations to support companies that are part of international groups working in Portugal. Work was also carried out on seeking opportunities for renegotiating conditions. In the business promotion area, there was continuing work on the statistics and analysis of operations abroad, broken down into Caixa, customer and product. At the request of various Caixas, visits to specific customers were accompanied by a specialist in order to boost business. International business where the Caixa Central acted as an intermediary stood at 1,439 million euros as at 31 December This was a fall of around 16.33% year on year, a situation that can be explained by reference to the drop in Portuguese foreign trade. In fact, market share moved up, from 1.67% to 1.71%.

25 59 Documentary operations rose by 39.5%, going against the trend of recent years. The situation, however, derived from a one-off operation involving the issuing of a bank guarantee for a particularly large amount. This related to the import of agricultural produce, on request from and with the counter-guarantee of a front line European financial institution. The guarantee has in fact been reduced following the standard breakdown into quantities to be imported by various different operators interested in the business. Leaving out this operation, growth was only to the order of 4.6% and there was a fall in volume of around 15.5%. There has been stagnation in foreign business for several years now, and there needs to be a more proactive approach by the commercial areas in the Group to turn this situation around. This is even truer as the economy contracts, given the overall fall in business that will increase competition between the banks. Work continued on developing the SEPA project, with the highlight on the payment services directive which came into force. This required adaptations both in terms of regulations and in information technology. The Caixa Central continued to work actively in the working groups organised by the interbank payment system committee (CISP - Comissão Interbancária para os Sistemas de Pagamento) and took part in working groups organised by the EBA (European Banking Association). Foreign operations Figures in thousands of euros except % /2008 Volume Structure % Volume Structure % % Documentary Operations (*) 60, % 59, % -1.9% Non-Documentary Operations 1,659, % 1,379, % -16.9% Total 1,719, % 1,439, % -16.3% (*) Includes balances on operations that involve credit up to December 2009

26 60 As mentioned above, market share moved up, to stand at 1.71%, compared with 1.67% a year earlier. Internacional trade - CA market share Figures in thousands of euros except % Domestic(*) CA(**) Share ,123 1, % ,159 1, % (*) Figures for trade in goods and services (**) Excluding emigration Emigration and representation abroad This is a Caixa Central structure that has a transverse role for the Group, since its operations cover the segment of non-residents in Portugal, and the opening up and monitoring of business with Portuguese customers abroad. This means improving and strengthening ties with this segment. The strategic aim has been to take the first steps in creating the conditions for a real internationalisation of the Crédito Agrícola. With this in mind, a number of actions were carried out over the year to increase the public profile of the Group. This has involved, among other things, participation in and sponsorship of cultural events, philanthropic activities and training courses given abroad. Given this more notable presence with Portuguese communities and companies based abroad which want to maintain or develop business with Portugal, there has been a flow of customers (individuals and companies) wishing to start a commercial relationship with the Crédito Agrícola. Emigration The importance of this segment is well known in the Crédito Agrícola, clearly justifying the focus it gets with the commercial areas that operate abroad and through the commercial activity that is undertaken.

27 61 As a result of this strategy, the CA Group market share rose again year on year both in terms of remittances from emigrant workers and deposits from the Portuguese diaspora. This means that there has been a period of growth unbroken for 10 years. Remittances rose by 3.3% in volume (8.8% in the number of operations), taking the Group s market share to over 15%, a growth of approximately 2pp. In terms of deposits, there was also growth, against the run of overall figures for the country, where there was a fall-off. Volume of remittances to the Group from abroad 350,000 (Figures in thousands of ) 300, , , , Emigrant Remittances Figures in thousands of euros except % No. Operations Volume Share , , % , , % , , % 08/09 8.8% 3.3% p.p.

28 62 Emigrant deposits Figures in thousands of euros except % National CA GROUP Share ,240, , % ,837, , % ,670, , % 08/09-2.1% 1.6% p.p. Emigrant deposits offshore not included A word is also warranted for the recent move on the immigrant population. Here, the set up was concluded on the Western Union international transfer service through the CA network. There has been considerable growth, coming in at more than 4.5 million euros in transfers during the year. Foreign branches The foreign branches of the Caixa Central are the preferred organisation for products and services on offer to non-residents in general and Portuguese emigrants in particular. The foreign branches operate in an extremely competitive market for picking up business, and they are also present in financial markets where risk management and volatility make their work ever more demanding. Their aim over the year was to ensure the competitiveness of their products on the one hand and on the other the rigorousness and safety of financial management on their balance sheets. The consolidated results are noteworthy: around 1.2 million euros, a rise of more than 121% over The strategy of the Group in 2010 is to give pride of place to sustained development of operations with non-residents and to finding business opportunities abroad with Portuguese enterprises which are looking to expand beyond the country s borders. This strategy will be based on greater diversification of the Group in its representation abroad.

29 FINANCIAL OPERATIONS AND THE CAPITAL MARKET Treasury Strategy And Operations The year was marked by the continuing aftershocks from the financial crisis which reached a climax towards the end of 2008 in the aftermath of the bankruptcy of Lehman Brothers. Since then central banks above all have fired off a real battery of anti-crisis measures. Among these are the brutal cuts in official interest rates, leading them purely and simply to land at values near 0%. In the euro area, the European Central Bank base rate (which was rising in July 2008, when it reached 4.5%), fell steeply after the ECB meeting on 8 October 2008, to reach 1% in May of the following year. Euribor rates also hit historic lows, falling to 0.700% and 0.987% for three and six months respectively. In this context, treasury investment was guided by the following points of reference: To minimize the impact of the steep fall in interest rates on returns; To manage from a change in the mix, taking advantage of the big spread in the market, with an additional margin to transfer to associated Caixas specifically through the special deposit vehicle (Depósito a Prazo Especial de Cobertura - DPEC) to shore up the deposit base in circumstances where the adjustment of interest rates on commercial funds was reaching a natural limit as reference rates dived towards zero and as cut-throat competition reared its head again; Ensure that this was done without damaging liquidity, in line with loan criteria tightly hedged about in the crisis atmosphere, maintaining all the while the duration of Caixa placements at the Caixa Central, this being an appropriate alignment in the circumstances. This approach led to a series of initiatives consistently followed through during Salient among these were: Increasing the duration of placements in the interbank money market, with the set up of a portfolio of bonds at fixed rate on credit institutions (the nominal value of which stood at 211 million euros at year end 2009), including those with state guarantee, the return anchored in a context of falling base rates in the market;

30 64 The use of securities portfolios with spot liquidity, to carry out repo operations at the European Central Bank or in the market (the average volume through the year coming in at 512 million euros), reaching margins that were exceptionally high in the circumstances between placements on the interbank money markets and those realized through the guarantee on the securities; The acquisition of bonds at floating rate, medium-term, high spread although falling apace during the year (with 311 million euros nominal value at year-end); The acquisition of portfolios for liquidity cover, launched during the year, these being the guaranteed income deposit (Depósito Rendimento Seguro) and the growth in savings product (CA Aforro Crescente), reaching 141 million euros nominal value at year-end. These initiatives, even in a context of steep falls in interest rates, made it possible to: Hold firm the rate of return on excess liquidity placed by the associated Caixas at the Caixa Central; Put one-off measures for the Caixas into place, the special term deposit (Depósito a Prazo Especial) being the most typical to provide support for the financial efforts they were making to bolster their fund base; Safeguard the Caixa Central s financial margin. Assets under management at the financial department Figures in thousands of euros Money market, commercial paper and deposits at Banco de Portugal Amount Variation % of the total Absolute Relative ,125,435 1,50, , % 76.5% 54.8% Securities 653,913 1,246, , % 23.5% 45.2% Total 2,779,348 2,755,983-23, % 100.0% 100.0%

31 Associated Caixas and the Corporate Desk Throughout the year, the CEACD continued to develop the project which targeted cooperation between the associated Caixas Associadas and the commercial areas of the Caixa Central. The focus was on promotion, sale and distribution of treasury products and financial markets. This concluded the round of visits to the Caixas, carried out with a view to presentation of the service known as associated Caixas and the corporate desk, providing a list of opportunities for developing cooperation in this sphere. The Caixas, working with the human resources department, set up more visits to the markets room. The training department has now welcomed representatives from around 40% of the associated Caixas since the start of this programme. During the visit, there is a chance to get to know how the financial department works and how it is organized along with a look at the operations carried out there. The purpose behind this is to give representatives from the Caixas a chance to find out more about technical features and the way products can be handled commercially, as well as the operational and financial risks to be borne in mind during negotiations and processing. The aim is also to develop mutual understanding and make it possible to reach a more informal contact needed for promotion and development of commercial operations on a day-to-day basis. The creation of a specific mechanism to cover term deposits made by the Caixas at the Caixa Central meant that the CEACD would be involved in monitoring the product and adapting it to specific situations outlined by the Caixas for their own needs. With this in mind, control and reporting mechanisms were developed to cover the Caixas using the product. The IT platform developed by CA Serviços for the distribution of structured deposits was concluded in 2008, and during the year under review, work was started on upgrading the tool so as to cope with specific requirements and streamline its use even more. The upgrade involves automatic production of documentation, more flexible cover, and it includes the new contract and deposit lock-in The financial function at the Crédito Agrícola Group During the year, the asset and liabilities management (ALM) project became fully operational, with a committee in place (ALCO) to manage operations. The focus was on developing solutions

32 66 which could ease the impact of the market environment on the financial margin of the Caixa Central and members of SICAM. Against a backdrop of high uncertainty, the focus was also on actions that could increase available liquidity on the balance sheet. The ALCO continues to provide a decisive contribution to the integrated and consistent management of balance sheet risks associated with each and every member of SICAM and of the Group as a whole. In this way it can assist in the joint analysis and decision-making process within the scope of this committee and look closely into the various functional aspects relevant to its operations, among them the financial, the risk-related and the commercial. The year saw an on-going search for a solution as to how profitability of the business units could be assessed using internal transfer prices Risk Control in the Treasury Field Treasury operations involve specific risks, among them market, credit, counterpart and operational risks, with control exercised in the first instance by the coordination units in the market room and in CEACD and on a second line by the specialist office in the financial department. This is on permanent alert regarding the risk limits set out, and produces daily reports of actions carried out. There was a much sought-after intensification and diversification of treasury activities, covering a wide range of markets and instruments, with a dynamic approach to promoting and selling treasury and market products and services through CEACD, and this is leading to more stringent demands. With this in mind, there was continuing work on the project to find a new support that would integrate front, back and middle office operations in the financial department. This solution will bring a revision of internal ways of working and bring management of operational, market and counterpart risks up to the highest possible level of control. The development of this IT solution is also making additional products available and these are important for strengthening the efficiency of treasury management. A wide field of commercial applications is open for development through CEACD.

33 Intermediation in the Capital Markets Operations here tracked up, with growth in revenue, in spite of the persistent crisis in the financial markets. The details are given below: Figures in thousands of euros Activity Value Gross commissions Money market, 2,643,043 1,118, Custodian / Depositary operations* 1,072,370 1,141, ,385 Commercial paper * 32, , (*) Balance at 31/12/2009 Number of contracts Gross commissions Futures market 68,434 35, There was growing income from the reception and transmission of orders, even though volumes processed were down, with containment of operations involving Group companies in response to the climate in the financial markets. This factor also weighed on customer operations in the futures markets throughout the year. There was a considerable increase in profits in custodian and depositary operations year on year, with more portfolios under management and higher depositary commissions from investment funds. There were 6,933 securities accounts at year-end, following definitive closure of accounts that had not migrated to CA Dealer. There were 69 accounts existing for negotiations in futures. The year also saw a growth in the number of credit operations involving mutual guarantee enterprises (Sociedades de Garantia Mútua). These operations involved 538 securities accounts, with related deposit of shares and drawing up of pledges.

34 68 The securities department worked with the DCCC and CA Serviços on the analysis and specification of requirements to improve automatic recording of information to be reported to the DGCI. There were ever more customers with access to the platform for dealing at the Stock Exchange as part of the Internet banking operation in the Crédito Agrícola - CA Online. The number stood at 2,301 at year-end 2008 and moved up to 3,393 a year later. There have been changes in the prudential rules that are applicable to financial institutions, with lifting of the solvency ratio to not less than 8% of core capital (Tier I), and a special issue of bonds was made to cover this. The securities are called Títulos Especiais de Investimento Tier 1 - Caixa Central/ 2009, with placement totalling 35.5 million euros. The issue is in the form of subordinated debt equivant to core funds and of unspecified duration. It was exclusive to the associated Caixas, and took place in two stages, in September and November Another operation of interest was the commercial paper issue progamme, with limited placement, carried out in collaboration with the office handling businesses (Gabinete Comercial de Empresas). Six new programmes were put together to a total of 80.5 million euros, with 102 issues over the year. There was work on a series of functionalities for IT applications in the Group, carried out in collaboration with CA Serviços and other areas of the Caixa Central. The work involved the analysis, structuring and specifications for requirements, development and tests. The main features of the new functionalities are as follows: Validation through the IT systems (Aplicação Central Profile, Solução Local, SIFOX - Central Online and Crédito Agrícola Online), of the need to classify customers who wish to deal or open investment accounts in financial instruments handled by the DMIF; Verification through these systems of adequacy in the products that the customer wishes to deal in, with reference to the classification of the DMIF; The central register (on the Aplicação Central) of the DMIF data for each customer (classification, results of adequacy tests and confirmation of order on the type of complex instrument) with availability for consultation; This area of the Group also worked on organising and putting on training courses for those