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Press release of Banco de Portugal on the conclusion of the Special Inspections Programme

On 16 December, Banco de Portugal published a press release on the results of workstreams 1 and 2 of the Special Inspections Programme (SIP) for the financial system, carried out in the context of the Economic and Financial Assistance Programme agreed in May 2011 with the International Monetary Fund, the European Commission and the European Central Bank. In this press release, Banco de Portugal stated that workstream 3 of the SIP was ongoing and would be finished during the first quarter of 2012.

The work in question involved eight banking groups, Banco Comercial Português (BCP), Banco BPI (BPI), Caixa Geral de Depósitos (CGD), Espírito Santo Financial Group (ESFG), Caixa Económica Montepio Geral (CEMG), Santander Totta (BST), Rentipar Financeira (BANIF) and Sistema Integrado do Crédito Agrícola Mútuo (SICAM), whose assets represented approximately 80% of the national banking system’s total assets.

Workstream 3 of the SIP has now come to an end. It aimed to assess the methodologies and parameters used by the eight largest Portuguese banking groups in carrying out the stress-test exercises, in the context of evaluating their soundness and financial capacity to face adverse shocks in the future.

In the first two workstreams concluded in December 2011, assessments focused on impairment levels and on the credit risk capital requirement calculations, as at 30 June 2011.

The third and last workstream was based on a forward-looking approach, with a view to assessing the parameters and methodologies used by the banks in the financial projections underlying their future solvency evaluation.

As in previous SIP stages, and considering the objectives, framework and timeframe defined, works were carried out by a specialised management consulting firm, Oliver Wyman, in close cooperation with Banco de Portugal.

The work came to an end on 29 February, and the respective results were submitted to the Steering Committee, which defined the scope and monitored the development of the whole Special Inspections Programme.

The Steering Committee has been set up to monitor the implementation of the programme. It is chaired by Banco de Portugal and comprises experts appointed by the International Monetary Fund, the European Commission, the European Central Bank, three European Union supervisory authorities – Banco de España, Autorité de Contrôle Prudentiel (France) and Banque Nationale de Belgique – and Banco de Portugal.

The work undertaken has made it possible to classify the eight banking groups into four categories:

  • Institutions that have used clearly appropriate parameters and methodologies: two banking groups
  • Institutions that have used appropriate parameters and methodologies: one banking group;
  • Institutions that have used appropriate parameters and methodologies regarding most of the aspects under review, although requiring some improvement in particular areas: four banking groups; and
  • Institutions that require some improvement in a range of specific areas, for the parameters and methodologies to be deemed appropriate: one banking group

Aspects requiring improvement have been indentified in all banking groups, and Banco de Portugal will call for the adoption of appropriate corrective measures, within the scope of a plan defining implementation priorities and terms, in order to ensure that all institutions use parameters and methodologies appropriate to their size and risk profile. Banco de Portugal will also adopt regular procedures to monitor the implementation of corrective measures, in line with a pre-defined timetable.

Lisbon, 1 March 2012