FOR IMMEDIATE RELEASE
GRUPO BANCO ESPIRITO SANTO 1Q2003 RESULTS (Unaudited)
LISBON - April 28, 2003 -- Banco Espírito Santo (BES) today announced its first quarter 2003 results.
HIGHLIGHTS
* Net income increased 9.9%, to euro 60.1 million. Annualized first
quarter result corresponds to a ROE of 13.0%.
* Fees and commissions grew 7.3%, based on continuous improvement of
service quality, more than offsetting the decrease of Net Interest
Income (2.9%).
* Costs were contained within planned limits for the year, rising by
2.1%.
* Provisions were significantly reinforced (euro 63.7 million), in
line with a prudent risk coverage policy.
* Credit growth was limited against a macroeconomic scenario of
greater risk: customer credit (on-balance sheet) was up 3.6% while
on-balance sheet customer funds rose by 10.9%, with a positive
impact on the transformation ratio, which decreased from 117% to
109%.
* Comfortable solvency levels: the solvency ratio remains way above
recommended levels while the coverage of overdue loans remains
high.
CONTACTS Paulo Padrao
Elsa Jardim
Banco Espírito Santo, Lisbon
+351 21 350 1713
www.bes.pt/ir
1. ECONOMIC ENVIRONMENT
Economic activity in the first quarter of 2003 was conditioned by a climate of extreme uncertainty linked to the war in
Iraq, and in particular to its unclear potential effects on an already weakened world economy. The main stock market
indices reached the year's low in the second week of March, just before the start of the war, while the price of Brent
crude oil recorded a maximum of 34.9 dollars per barrel at the beginning of the same month.
In the United States GDP is thought to have grown at an annualized real rate of around 2% in the first three months of
the year. Household spending registered zero growth in January and February, and consumer confidence reached the lowest
level of the last 10 years in March. On the supply side, March also saw a contraction in both the industrial and the
services sectors.
In the Euro Area, GDP is estimated to have posted flat growth in the first quarter. The economic activity in the Euro
Area continued to be marked by very high unemployment (8.7% in February), restraining the confidence and spending of
families. To address a feeble economic activity and given the lack of inflationary pressures in the medium term, the
European Central Bank cut, in the beginning of March, its key interest rates by 25 basis points, bringing the Refi rate
down to 2.5%. The slowing down of the economy in the Euro Area did not halt the rising trend of the single currency.
Faced with an adverse external situation, economic activity in Portugal continued to struggle under extremely difficult
conditions. The Bank of Portugal's coincident indicator for the first quarter dropped by 3.2% year-on-year, reflecting
the overall negative trend of the construction, trade and industry sectors. The trend for rising unemployment persisted
in the month of March, with 420 thousand unemployed registered in the Training and Employment Institute. The adjustment
process of internal demand was thus pursued, with imports falling by 3.5% in January. Exports continued to recover,
rising at a nominal rate of 5.1% in the first month of the year. On the equity market front, the PSI-20 index
registered a drop of 8.9% between January and March.
2. ACTIVITY HIGHLIGHTS
The commercial strategy that underlies the activity developed by Group BES continues to show considerable dynamism in
spite of the difficulties raised by a very tough macroeconomic environment. Total customer funds were up by 9.5% while
customer loans, though slowing down, rose by 3.6% (8.7% if including securitized credit). Product innovation,
fine-tuned segmentation and the continuous improvement of quality standards continued to be the key factors in the
vigorous performance displayed.
MAIN BUSINESS VARIABLES
euro
million
March 2002 March Change
2003 (%)
Net Assets 37,981 40,326 6.2
Loans to Customers (gross) 25,051 25,954 3.6
- Mortgage 8,711 8,798 1.0
- Other Loans to Individuals 1,959 1,844 -5.9
- Corporate 14,381 15,312 6.5
Loans to Individuals / Customer 42.6 41.0 -1.6 p.p.
Loans (%)
Funds
+ Deposits 16,301 16,988 4.2
+ Debt Securities 9,070 10,455 15.3
= On-Balance Sheet Funds 25,371 27,443 8.2
- EMTN and Commercial Paper 4,561 4,361 -4.4
= On-Balance Sheet Customer Funds 20,810 23,082 10.9
+ Off-Balance Sheet Funds 9,994 10,640 6.5
= Total Customer Funds 30,804 33,722 9.5
Transformation Ratio (%) 117 109 -8 p.p.
The moderate growth pace of credit also reflects the securitization operations carried out by the Group (one of
consumer and leasing in the second quarter of 2002, and another of residential mortgages, in December of the same
year).
The following chart shows the evolution of credit, including the impact of securitization:
euro million
March 02 March 03 Change (%)
Excl. Incl. Excl. Incl. Excl. Incl.
Securiti-zation Securiti- Securiti-zation Securiti-zation Securiti-zation Securiti-zation
zation
Loans to 25,051 25,226 25,954 27,421 3.6 8.7
Customers
Mortgage 8,711 8,711 8,798 9,778 1.0 12.2
Other 1,959 2,134 1,844 2,071 -5.9 -3.0
Loans to
Ind.
Corporate 14,381 14,381 15,312 15,572 6.5 8.3
* Mortgage loans remained the most dynamic item overall (rising by
12.2%), which is quite noteworthy given the Government's
extinction of the subsidized credit regime;
* Other loans to individuals, where selectivity criteria were
tightened, decreased 3.0%;
* Corporate lending rose by 8.3%, reflecting a slowdown against
the end of 2002, when its growth rate was 10%.
Total customer funds increased by 9.5%. The performance of on-balance sheet customer funds was quite remarkable
(+10.9%), particularly in terms of deposits, with an increase of euro 687 million, up by 4.2%. Off-balance sheet funds
grew by 6.5%, despite a negative background that continued to condition the market. The subscription of domestic mutual
funds and bancassurance products, up by respectively 38% and 16%, was decisive to this growth.
A sales forced motivated to attract more funds, combined with moderate credit growth, led to a fresh improvement in the
transformation ratio, from 117% in March 2002 to 109% at the end of the first quarter of 2003.
3. RESULTS AND PROFITABILITY
Consolidated net profit reached euro 60.1 million, which corresponds to a year-on-year increase of 9.9% and a Return on
Equity (ROE) of 13%, the same as achieved in full 2002.
INCOME STATEMENT
euro
million
March 2002 March Change (%)
2003
Net Interest Income 195.7 190.0 -2.9
+ Fees and Commissions 93.9 100.8 7.3
= Commercial Banking Income 289.6 290.8 0.4
+ Capital Markets Results 28.1 50.3 79.0
= Banking Income 317.7 341.1 7.4
- Operating Costs 175.0 178.7 2.1
- Net Provisions 55.5 63.7 14.8
Credit 48.5 47.1 -2.9
Securities 2.4 -2.1 ...
Others 4.6 18.7 ...
- Extraordinary Results and Others 6.8 16.7 145.6
= Results Before Taxes and 80.4 82.0 2.0
Minority Interests
- Income Taxes 15.1 13.3 -11.9
- Minority Interests 10.6 8.6 -18.9
= Net Income for the Period 54.7 60.1 9.9
3.1 Net Interest Income
Declining interest rates, scarce liquidity, reduced consumer credit and the extinction of subsidized mortgage credit,
all combined to condition strongly net interest income this quarter, as we predicted in the 2002 results release.
Despite the difficulties presented by the current economic situation, the Board is already taking appropriate steps
that should enable the Group's net interest income to bounce back, while maintaining strict control over credit risk.
The net interest margin for the quarter was 2.12%, which compares with 2.27% in full 2002 and 2.25% in the first
quarter of that year.
3.2 Fees and Commissions
Fees and commissions on customer services reached euro 100.8 million, a year-on-year rise of 7.3% that stemmed from the
sphere of traditional products and the positive contribution of investment funds and cards, as well as project finance
and structured finance businesses. A policy geared towards improved service quality and the launch of fresh initiatives
aimed at reinforcing loyalty in the customer base were crucial contributors to the growth achieved.
3.3 Capital Markets Results
Following on previous actions, Group BES continued to seek opportunities linked to the evolution of interest rates. A
selective use of fixed income instruments afforded new gains in financial operations before the beginning of the Iraq
conflict, leading to the offset of the negative effects of a falling equity market as well as to reinforce Other
Provisions.
3.4 Operating Costs
Operating costs were contained within planned limits, rising by 2.1%. Depreciation and amortization showed the highest
growth, which is explained by the start of the depreciation period of the investments made in modernizing processes,
the most significant being the new management information system (SIG), the Workflow and E-procurement.
euro million
March 2002 March Change (%)
2003
Staff Costs 81.3 79.0 -2.8
Other Administrative Costs 62.3 64.3 3.2
Depreciation 31.4 35.4 12.7
Operating Costs 175.0 178.7 2.1
The rationalization plan for 2003 is proceeding according to plan. There was a net reduction of 41 employees in the
first quarter of the year. The objective for the full year remains at 250.
3.5 Provisioning
Provisions were reinforced by euro 63.7 million (14.8% YoY). Credit provisions stand significantly above minimum
regulatory requirements. Provisions for country-risk and Fund for General Banking Risks contributed to the increase in
provisions for other purposes.
3.6 Extraordinary Results and Other
The consequences of the current cycle of economic recession were felt in the "Extraordinary Results and Other" heading,
where the euro 9.9 million increase adversely affected the income statement. This was mainly due to the amortization of
extraordinary retirement charges and actuarial deviations in the pension plan.
3.7 Profitability
Return on assets (ROA) reached a good level compared to the previous year, even though positively influenced by the
securitization operations. Return on equity (ROE), based on annualized results, points to a similar level as that
achieved in full 2002.
PROFITABILITY
(%)
March 2002* 2002 March 2003*
Return on Equity (ROE) 15.8 13.1 13.0
Return on Assets (ROA) 0.57 0.57 0.60
*Annualized
4. ASSET QUALITY AND FINANCIAL STRENGTH
Bearing in mind the adverse economic context, asset quality did not deteriorate significantly, emphasizing the Group's
capacity to manage credit risk.
In view of the difficult period which all economies, both domestic and international, are going through, provisions for
credit were increased (euro 115 million) by an amount that exceeded the rise in overdue credit (euro 93 million).
YoY Change
Mar Dec Mar absolute relative
2002 2002 2003 (%)
Loans to Customers (M?) 25,051 25,795 25,954 903 3.6
(Gross)
Overdue Loans (M?) 476.0 548.8 568.9 93 19.5
Overdue Loans > 90 (M?) 411.7 481.8 499.0 87 21.2
days
Provisions for (M?) 620.6 716.1 735.5 115 18.5
Credit
Overdue Loans / % 1.90 2.13 2.19 0.29 p.p.
Loans to Customers
(gross)
Overdue Loans > 90 % 1.64 1.87 1.92 0.28 p.p.
days/Loans to
Customers (gross)
Coverage of % 130.4 130.5 129.3 -1.1 p.p.
Overdue Loans
Coverage of % 150.7 148.6 147.4 -3.3 p.p.
Overdue Loans > 90
days
The ratio of overdue loans over 90 days was 1.92%, while the coverage ratio remained at a high level (147% for overdue
loans over 90 days and 129% for total overdue loans).
The solvency ratio remains at comfortable levels: 10.7% according to the Bank of Portugal's rules (Dec 02: 10.7%) and
12.8% under the BIS criteria (Dec 02: 12.8%).
(%)
Dec 02 Mar 03*
Solvency Ratio (Bank of Portugal)
- TIER I 6.06 6.00
- Total 10.74 10.67
Solvency Ratio (BIS)
- TIER I 7.19 7.13
- Total 12.81 12.76
* estimate
Debt rating (medium and long term) remains A1 as assigned by Moody's, A- by Standard and Poor's and A+ by
FitchRatings.
5. PRODUCTIVITY
Group BES has achieved fresh improvements in its Cost to Income ratio, which decreased 2.7 p.p. versus the same period
in the previous year.
Notwithstanding current economic difficulties, BES maintains the objective of reaching a cost to income ratio of 50% at
the end of 2003, as well as the target set in terms of costs.
The remaining productivity indicators also improved significantly, in particular Operating Costs / Average Net Assets
and Total Assets per Employee ratios.
PRODUCTIVITY
Indicators Mar Dec Mar Change YoY
02 02 03
Cost to Income (including % 55.1 53.4 52.4 -2.7 p.p.
markets)
Cost to Income (excluding % 60.4 59.5 61.4 1.0 p.p.
markets)
Operating Costs / Average Net % 1.81 1.85 1.78 -0.03 p.p.
Assets
Total Assets* per Employee Eur 6,022 7,017 6,930 15.1 %
1,000
* Includes Asset and Liability
off balance-sheet items
6. ELECTRONIC BANKING
The first quarter of 2003 continued to display a sharp increase in the number of users of BES's Direct Channels,
revealing the customers' enhanced multi-channel oriented behavior in their relationship with the Bank.
At the end of the quarter, Banco Espírito Santo had 758,000 clients using its telephone banking service and 619,000
using its internet banking service for individuals, on the whole accounting for a penetration rate in BES's retail
customer base of 44.7%. The number of companies using the Bank's internet banking service for corporate customers
totaled 28,000 on the same date.
EVOLUTION OF BES DIRECT CHANNELS' CLIENTS
Users
Mar 02 Mar 03 Growth
BES Directo 641,616 757,916 18%
BESnet 405,233 619,155 53%
BESnet Negócios 16,832 28,287 68%
7. INTERNATIONAL ACTIVITY
During this quarter, the operations carried out by the Investment Banking's area of Project Finance, in Europe, as well
as M&A area in Brazil deserve a note:
* Metronet - 2nd and 3rd concessions for the London Underground's
Infrastructures operation;
* Expansion of the Barcelona Underground - Concession for the
transport of passengers through a surface rail line;
* Combined-cycle power station at Rijmond (The Netherlands);
* Tele Centro Oeste Celular, S.A. (Brazil) - Advisory to Brasilcel
(PT/Telefónica joint venture) in the acquisition of TCO;
* BBV Banco (Brazil) - Advisory on the acquisition of BBV Banco
(BBVA subsidiary in Brazil) by Banco Bradesco.
The announcement of these operations totaling US$ 1.8 bn placed BES Investimento in the first place of M&A Transactions
ranking in Brazil.
THE BOARD OF DIRECTORS
BANCO ESPIRITO SANTO
CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2003
(Unaudited Figures)
Mar 2002 Mar 2003
(1,000 EUR) (1,000 EUR)
NET ASSETS
Cash and deposits at Central Banks 767,556 704,987
Loans and advances to credit 604,443 481,801
institutions repayable on demand
Other loans and advances to credit 3,590,374 4,527,234
institutions
(Provisions) (9,900) (8,395)
Loans and advances to customers 25,051,316 25,953,623
(Provisions) (318,975) (375,498)
Bonds and other fixed income securities 4,839,179 4,435,266
(Provisions) (74,901) (87,937)
a) Issued by Government and Public 1,764,697 1,368,038
entities
(Provisions) (8,997) (5,638)
b) Issued by other entities 3,067,396 3,055,131
(Provisions) (65,904) (82,299)
c) Own securities 7,086 12,097
Shares and other variable income 589,851 714,780
securities
(Provisions) (75,267) (102,641)
Investments in associated companies 40,046 50,670
(Provisions) (2,384)
Other investments 845,811 949,353
(Provisions) (3,975) (41,996)
Intangible assets 463,006 537,330
(Amortization) (280,695) (363,276)
Tangible assets 1,025,850 1,055,702
(Depreciation) (594,635) (638,400)
Treasury stock 4,639
Other debtors 538,223 477,457
(Depreciations) (18,115) (19,155)
Prepayments and accrued income 1,001,541 2,072,575
TOTAL NET ASSETS 37,980,733 40,325,735
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts owed to credit institutions 7,056,756 7,350,694
a) Repayable on demand 347,640 336,806
b) With agreed maturity date 6,709,116 7,013,888
Amounts owed to customers 16,300,529 16,988,079
a) Savings accounts 2,532,138 2,226,471
b) Repayable on demand 6,037,541 6,815,701
c) With agreed maturity date 7,730,850 7,945,907
Debt securities 9,070,328 10,454,903
a) Outstanding Bonds 7,195,365 8,512,526
b) Other securities 1,874,963 1,942,377
Other liabilities 170,807 190,664
Accruals and deferred income 913,410 662,579
Provisions for liabilities and charges 337,370 413,627
a) Pension plan and equivalent 153 4,790
charges
b) Other provisions 337,217 408,837
Provisions for general banking risks 61,271 18,251
Subordinated debt 1,455,685 1,694,615
Share capital 1,500,000 1,500,000
Share premium 300,000 300,000
Reserves 64,736 80,977
Revaluation reserves
Retained earnings 75,200 86,100
Minority interests 619,907 525,126
Consolidated net income for the period 54,734 60,120
TOTAL LIABILITIES AND SHAREHOLDERS' 37,980,733 40,325,735
EQUITY
BANCO ESPIRITO SANTO
CONSOLIDATED INCOME STATEMENT AS AT MARCH 31, 2003
(Unaudited Figures)
Mar 02 Mar 03
(1,000 EUR) (1,000 EUR)
CREDIT
Interest income 561,954 497,089
Income from securities 2,239 6,181
Commissions 83,659 86,353
Profits arising from trading activity 797,020 601,714
Write-back of provisions 49,445 53,402
Income arising from the equity method
of consolidation 2,068 795
Other operating income 23,886 26,212
Extraordinary gains 11,239 3,278
Minority interests
TOTAL CREDIT 1,531,510 1,275,024
DEBIT
Interest expense 366,206 307,053
Commissions 13,655 11,773
Losses arising from trading activities 771,178 557,606
General administrative costs 143,620 143,284
a) Staff costs 81,291 78,992
b) Other administrative costs 62,329 64,292
Depreciation 31,429 35,380
Other operating expenses 2,297 2,371
Provisions for loan losses and other 104,778 116,568
risks
Provisions for investments 170 531
Extraordinary losses 15,547 15,915
Income taxes 15,139 13,290
Other taxes 2,171 1,730
Losses arising from the equity method
of consolidation 782
Minority interests 10,586 8,621
Consolidated net income for the period 54,734 60,120
TOTAL DEBIT 1,531,510 1,275,024
This news release may include certain statements relating to the Banco Espírito Santo Group that are neither reported
financial results nor other historical information. These statements which include [targets, forecasts, projections,
descriptions of anticipated cost savings, statements regarding the possible development or possible assumed future
results of operations] and any statement preceded by, followed by or that includes the words "believes", "expects", "
aims", "intends", "may" or similar expressions or negatives thereof are or may constitute forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act of 1995, regulations, and case law.
By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty.
There are a number of factors that could cause actual results and developments to differ materially from those
expressed or implied by forward-looking statements. These factors include, but are not limited to, changes in economic
conditions in individual countries in which the BES Group conducts its business and internationally, fiscal or other
policies adopted by various governments and regulatory authorities of Portugal and other jurisdictions, levels of
competition from other banks and financial services companies as well as future exchange and interest rates. [Certain
of the factors that could affect actual results and developments are described in Banco Espírito Santo's Annual Report
and Form 20-F under the heading "Risk Factors".]
Banco Espírito Santo does not undertake to release publicly any revision to the forward-looking information included in
this news release to reflect events, circumstances or unanticipated events occurring after the date hereof.