This apparently diverging developments in credit and deposits have been the
consequence of a significant change in the framework where the Portuguese banks
operate. Even before the Stage Three of EMU, with the elimination of capital controls on
the one hand and a significant reduction of the exchange risk of the escudo on the other,
the Portuguese banks have had easy access to financing in international money markets.
As we shall see these developments are likely to be responsible for the “structural break”
undergone by our estimated relations in the next section.
Chart 2 presents the evolution of the main non-deposits financing sources. It can be
seen that the increase in the growth rate of loans coincided with a decrease of the
government bonds in banks’ portfolios and an increase in the (net) funds obtained in the
international money markets. Banks partly substituted their investment in government
securities by credit to private non-financial sectors. This whole process seems basically to
have started in 1995 and accelerated in 1998. As a matter of fact, the weight of
government securities in banks’ balance sheets declined significantly from 19.5 per cent
of total assets in 1992 to 5.7 per cent in 1998 (13.4 per cent in 1995). Portuguese banks
have also been financed through credit/deposit operations with foreign banks. The weight
of deposits held by foreign MFIs on total liabilities increased from 5.8 per cent in 1992 to
15.3 per cent in 1998 (11.8 in 1995). In 1995 the Portuguese banks in our sample were net
creditors in the international money market but this situation was reversed as of 1996.
7. Empirical evidence using micro bank data for Portugal
In the empirical analysis on the incidence of the credit channel in the transmission of
monetary policy for the Portuguese economy, we use balance sheet information on a
sample of banks for which consistent data throughout 1990/1-1998/4 is available.
The process of bank mergers that occurred during the sample period has been taken
into account by treating bank groups as individual institutions and by repeating back
through the whole sample period the structure of groups prevailing in 1998. Merging
banks for which data for the complete period was not available were excluded from the
sample. The implementation of these criteria left us with a sample of 18 banks19.
19 Data on banks’ balance sheet items were taken from the data reported by the Portuguese banks to the
Banco de Portugal for the purpose of compilation of aggregate monetary statistics. Since the third quarter of
1997 the definitions of balance sheet items comply with the “ESCB implementation package”, some of the
series having been recollected back so that comparable series on the main items may be obtained.
19