Caixa Geral de Depósitos has returned to the top three ranking of Portuguese providers. Over the last three years the Portuguese bank has increased its issuance and volume sold, becoming at the end of the first quarter of 2014 the second most active provider in the Portuguese market with a 21% market share. Year to date, the Portuguese bank has issued 12 products reaching €287m in sales, compared with the €43m sold by the bank during the same period last year across four products. SRP spoke to Jeremy Dykes, head of front office - derivative trading and sales at Caixa Geral de Depositos, about the revival of the Portuguese bank.
What were the reasons behind Caixa Geral’s low levels of issuance in the structured products market in 2011?
In 2011 Portugal entered the IMF, EU and ECB assistance programme. The group’s focus at this time, as well as that of the majority of Portuguese Banks, was in obtaining liquidity through utilising the retail customer base.
Customers wanted short-term investments in their desire to keep their own liquidity close, due to uncertainty regarding the strength of the banking sector and also of their own personal circumstances.
For the banking sector this meant capturing significant investment volumes through deposits. The simple fixed-rate term deposit was heavily subsidised in order to achieve this goal.
The structured deposits segment did not have the capacity to attract the level of investment needed. Additionally, structured products were not able to provide the liquidity that investors required at that time. As a result CGD issued less structured product and focused on liquidity requirements.
Why did this change over the last couple of years? Has the bank’s strategy changed since then?
In the last couple of years, liquidity requirements have been met, capital ratios have improved and there is greater stability and confidence in the soundness of the banking sector. With this, subsidised deposit rates have been lowered or withdrawn altogether.
The bank is now focused on improving profitability, capturing longer-term funding and improving the product mix for our customers.
As term deposit rates have declined customers who are seeking opportunity to improve returns while still protecting capital.
Therefore, from both the customer’s needs and the bank’s objectives structured products have become a better fit, resulting in increased issuance in 2013 and 2014.
The message the bank is attempting to issue is that there is a permanent fit in the market for structured products between the simple term deposit product and the riskier capital at risk fund or equity investment where yields can be improved for a small, limited amount of risk.
What are Caixa Geral’s plans for the future? How do you see the future of the Portuguese structured retail products market?
CGD’s plans are to continue to offer a variety of choice to our customers with structured products included in the product mix. Structured products are seen as a product line that can capture funding, albeit not as much as simple term deposits, but at a more efficient rate. The intention is to continue to grow the total market size and within this our share to increase.
While interest rates have remained low there has been growth in the structured products market. The challenge for structured products will be when there is a move into a higher interest-rate environment. The future of the Portuguese structured retail products market will be to continue to innovate, providing a variety of choice for customers with attractive risk/reward ratios. The key, like any market, is to have enough successful outcomes for the customer to ensure longevity of the sector.
Caixa Geral is currently marketing five products.