Featured Product

    IMF Publishes Reports on 2018 Article IV Consultation with Portugal

    September 12, 2018

    IMF published its staff report and selected issues report under the 2018 Article IV consultation with Portugal. The Directors welcomed improvements in the resilience of the banking sector through higher capital and increased profitability. They noted that, while progress has been made in reducing the stock of non-performing loans (NPLs), further steps are needed to strengthen the banking sector, including a concerted effort to bring down the level of NPLs. Directors encouraged the authorities to continue to focus on preserving credit standards, monitoring mortgage markets, and employing macro-prudential measures, where necessary.

    The staff report highlights that balance sheets of banks strengthened in 2017, with capital augmentations and improved macroeconomic conditions. The average common equity tier (CET) 1 ratio rose 2.5 percentage points since end of 2016 to 13.9% at end of 2017. During this period, NPLs fell by EUR 9.4 billion, from EUR 46.4 billion at end of 2016, largely due to write-offs and sales of business loans and debt recovery (cures) for household loans, thus bringing the NPL ratio to 13.3% of gross loans from 17.2%. Although declining, the stock of NPLs remains a concern. At the end of 2017, the stock of NPLs stood at EUR 37 billion (13.3% of total loans), with about half of the NPLs covered by provisions. The authorities have been pursuing an NPL resolution strategy based on three pillars. First, supervisory actions (under the Single Supervisory Mechanism, or SSM), which include requesting regular updates of banks’ NPL reduction strategies, setting targets for NPL reduction, and monitoring and enforcing implementation. Second, legal, judicial, and fiscal reforms to remove impediments to NPL resolution. Third, measures to improve management of NPLs and develop secondary markets for troubled loans. Staff welcomes the progress made so far in the implementation of the NPL resolution strategy, as reflected in the significant reduction of the NPL stock and encourages the authorities to maintain this momentum and to press banks to strengthen their risk management and corporate governance.

    Most banks posted profits. Meanwhile, the impairment coverage ratio increased to 49.4% in the end of 2017, from 45.3% at the end of 2016. The liquidity coverage ratio reached 173.4% at the end of 2017 (minimum 100% is required since January 2018). The Banco de Portugal deployed macro-prudential measures to prevent the financial sector from taking excessive risk in a context of low interest rates and heightened competition. Against the background of gradually rising loan maturities, loan-to-value (LTV) and loan-to-income ratios in mortgage and consumer credit, the measures aim to prevent over exposures to residential mortgage and consumer loans by financial institutions and to minimize the risk of default by households. Staff welcomes the activation of these macro-prudential tools at this juncture, when credit standards were starting to ease. While supporting the measured approach taken, staff calls on the authorities to closely monitor the effectiveness of these measures and to supplement them. Despite the improved economic outlook, generating strong and sustained bank profitability will be challenging. Net interest income, the main source of Portuguese banks’ profits, remains moderate and may come under renewed pressure as deposit rates bottom out, funding costs may increase due to minimum requirement for own funds and eligible liabilities (MREL) issuances, and competition from fintech and nonbank financial institutions is expected to intensify. 

    One of the topics of discussion in the selected issues report is reforms in the legal and institutional framework for debt enforcement and insolvency in Portugal. The report notes that the authorities have implemented ambitious reforms in the legal and institutional framework for insolvency and debt enforcement. The objective was to increase the efficiency of the legal and institutional framework for debt enforcement and insolvency and to increase debt recovery and resolve NPLs to restore financial stability. However, despite the improvements in institutional performance and efficiency gains, some challenges persist. 

     

    Related Links

    Keywords: Europe, Portugal, Banking, NPLs, Macro-prudential Measures, Article IV, IMF

    Related Articles
    News

    BIS Examines Use of Big Data and Machine Learning at Central Banks

    BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.

    March 04, 2021 WebPage Regulatory News
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.

    March 03, 2021 WebPage Regulatory News
    News

    ECB Publishes Guide for Determining Penalties for Regulatory Breaches

    ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.

    March 02, 2021 WebPage Regulatory News
    News

    MAS Sets Out Good Practices to Manage Operational Risks Amid COVID

    MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.

    March 02, 2021 WebPage Regulatory News
    News

    ACPR Announces New Data Collection Application for Banks and Insurers

    ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.

    March 02, 2021 WebPage Regulatory News
    News

    BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox

    BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.

    March 02, 2021 WebPage Regulatory News
    News

    EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models

    EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.

    March 01, 2021 WebPage Regulatory News
    News

    SRB Publishes Overview of Resolution Tools Available in Banking Union

    SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.

    March 01, 2021 WebPage Regulatory News
    News

    EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR

    EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).

    March 01, 2021 WebPage Regulatory News
    News

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    March 01, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6655