General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
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

EU Finalizes Regulation on Prudential Backstop for Bank NPEs Under CRR

Regulation (EU) 2019/630, which amends the Capital Requirements Regulation, or CRR (Regulation 575/2013), with regard to the minimum loss coverage for non-performing exposures (NPEs), has been published in the Official Journal of the European Union.

April 25, 2019 WebPage Regulatory News
News

FASB Issues Minor Improvements to Financial Instruments Standards

FASB issued an Accounting Standards Update (ASU No. 2019-04) that clarifies and improves areas of guidance related to the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825).

April 25, 2019 WebPage Regulatory News
News

APRA Grants License to New Authorized Deposit-Taking Institution

APRA announced that it has granted Judo Bank Pty Ltd a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

April 24, 2019 WebPage Regulatory News
News

BoE Report on Evaluation of Approach to Concurrent Stress Testing

BoE published a report on the evaluation, by the Independent Evaluation Office (IEO), of the effectiveness of the approach of BoE to concurrent stress testing.

April 24, 2019 WebPage Regulatory News
News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News
News

FDIC Specifies Submission Timeline for FFIEC 031, 041, and 051 Reports

FDIC published the financial institution letters (FIL-21-2019 and FIL-22-2019) that offer guidance on submission of Call Reports FFIEC 051, FFIEC 041, and FFIEC 031 for the first quarter of 2019.

April 19, 2019 WebPage Regulatory News
News

US Agencies Propose to Revise Call Reports FFIEC 031, 041, and 051

US Agencies (FDIC, FED, and OCC) proposed to revise and extend, for three years, the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

April 19, 2019 WebPage Regulatory News
News

US Agencies Propose to Amend Rule on Supplementary Leverage Ratio

US Agencies (FDIC, FED, and OCC) are proposing to revise the capital requirements for supplementary leverage ratio, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

April 18, 2019 WebPage Regulatory News
News

EIOPA Held InsurTech Roundtable on Use of Cloud Computing by Insurers

EIOPA had, on April 11, 2019, hosted its Fourth InsurTech Roundtable on the use of cloud computing by insurance undertakings.

April 17, 2019 WebPage Regulatory News
News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2963