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Press release of Banco de Portugal on the strengthening of Portuguese banks’ capital positions

  1. In light of the increase in systemic risk triggered by the sovereign debt crisis in the euro area it was decided – in today’s European Council - that banking groups subject to the European Banking Authority’s (EBA) stress test exercise are required to strengthen their capital positions in order to reach a Core Tier 1 capital ratio of 9% by 30 June 2012 following a prudent assessment of their sovereign debt exposures at market prices as at 30 September 2011. This decision aims to build up a temporary capital buffer and consequently to strengthen the soundness of institutions amid the current uncertainty associated with the sovereign debt crisis.
  2. A preliminary estimate (based on June exposures valued at September prices) of Portuguese banks participating in the exercise points to the need to raise the Core Tier 1 capital by €4.4 billion resulting from the assessment of their sovereign debt exposures at market prices. An additional €3.4 billion are needed to reach the target set by EBA of a Core Tier 1 capital ratio of 9%. This corresponds overall to the amount resulting from the recapitalisation measures already foreseen in the 2011-2012 funding and capital plans presented to Banco de Portugal, in accordance with the commitments agreed under the Financial Assistance Programme.
  3. The Financial Assistance Programme to Portugal includes a bank solvency support facility which amounts to €12 billion. This means that there is sufficient public provision of equity available to recapitalise banks in the event that marked-based solutions do not materialise as would be desirable.
  4. As is well known, under the Financial Assistance Programme the largest Portuguese banking groups are subject to strengthened quarterly assessment procedures, specifically regarding compliance with the solvency levels set by Banco de Portugal and the ongoing deleveraging processes.

Lisbon, 26 October 2011