Banking Regulations in Portugal: An Overview

The banking sector in Portugal is governed by various legal and regulatory requirements, primarily stemming from the EU Capital Requirements Regulation (CRR) and the EU Capital Requirements Directive IV (CRD IV). These directives have been transposed into Portuguese law, ensuring that banks operating in the country adhere to specific capital adequacy standards.

Capital Adequacy Requirements

Banks in Portugal are required to maintain a minimum total amount of capital equal to 8% of their risk-weighted assets. This is further divided into three key components:

Common Equity Tier 1 (CET1)

• Banks must hold a CET1 of 4.5% of their risk-weighted assets.

Own Funds Requirement

• The own funds requirement is expressed as a percentage of risk-weighted assets, with safer assets allocated lower capital.
• This ensures that banks maintain sufficient capital to cover potential losses and maintain stability in the financial system.

Supervision and Enforcement

• Credit institutions must provide the Bank of Portugal (BoP) with all necessary information for evaluating compliance with capital requirements.
• Onsite inspections may take place to ensure adherence to regulatory standards.

Resolution Measures

In the event of a bank becoming undercapitalized, the BoP can resort to early intervention, temporary administration or resolution measures. These include:

Early Intervention

• The BoP can intervene to address issues and prevent further deterioration.
• This may involve providing additional capital or reorganizing the bank’s management.

Temporary Administration

• In cases where a bank is facing significant difficulties, the BoP may appoint temporary administrators to oversee the institution.
• This allows for a period of stabilization before determining the best course of action.

Resolution Measures

• If a bank becomes insolvent, regulatory authorities will decide whether immediate judicial liquidation or winding up is necessary.
• Resolution measures may include selling the business, creating a bridge institution, effecting asset separation, or conducting a bail-in.

Supervision of Parent Companies and Affiliates

The Banking Law does not limit the business activities of a credit institution’s parent company or any of its affiliates. However, they are subject to supervision based on their consolidated financial situation.

• Credit institutions with a registered office in Portugal that have one or more credit institutions or entities similar to credit institutions as subsidiaries, or that hold a shareholding in such institutions or entities, are subject to supervision based on their consolidated financial situation.
• The main duty of qualifying shareholders is to provide the BoP with all necessary information for supervising the credit institution in question.

Additional Capital Requirements

When a credit institution is in financial difficulty, the BoP may recommend that the institution’s shareholders provide additional capital to restore its capital adequacy. This ensures that banks maintain sufficient capital to meet regulatory requirements and maintain stability in the financial system.