## 1prtea2026003 - 2026. The FSAP findings were discussed with the

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### FSAP Team, Consultations, and Scope
- FSAP team leader: Ranjit Singh.
- Team members: Silvia Iorgova (Deputy Mission Chief), Jean Christine Armas, Guillaume Arnould, Antonio Pancorbo, Laura Valderrama (all MCM), Gohar Minasyan (EUR), Arz Murr (LEG), David Hoelscher, Michelle Monsees, Rhiannon Sowerbutts (external experts).
- Support staff: Meiko Xie (research analyst), Evelyn Schimpf (administrative support).
- Collaboration: FSAP team collaborated closely with the Portugal Article IV team.
- Principal meetings: Governor Álvaro Santos Pereira (Banco de Portugal, BdP); Minister Joaquim Miranda Sarmento (Minister of State and Finance, MoF); Luís Laginha de Sousa (President/Chair, CMVM); Gabriel Bernardino (President of the Board, ASF); Lino Santos (Head, CNCS); José Oliveira (Vice-Chairman, CNPCE); other senior officials, industry associations, select domestic banks, and private sector representatives.
- Purpose: assess financial system stability, identify systemic risk sources, and recommend policies to enhance resilience to shocks and contagion.
- Coverage exclusions: operational risk, legal risk, and fraud-related risks affecting financial institutions are not covered.

### Executive Summary: Systemic Assessment and Recent Developments
- Overall assessment:
  - Financial stability risks in Portugal remain moderate despite high global uncertainty.
  - The financial system is bank-dominated and has contracted since the European debt crisis.
- Banking sector structural changes:
  - Banks have boosted capital buffers and shifted to more stable funding sources.
  - Sovereign-bank nexus weakened as banks rebalanced from domestic into euro area (EA) sovereign debt holdings.
- Credit dynamics:
  - Bank credit growth was sluggish between the early 2010s and late 2024; credit declined relative to GDP.
  - Credit growth accelerated since late 2024; risks currently moderate but warrant close monitoring.
- Systemic risk and resilience:
  - Systemic risk declined; banks exhibit strong profitability and liquidity.
  - Banks can absorb cumulative house price shocks of 40 percent over three years under FSAP analysis.

### Macrofinancial Background and Near-term Outlook
- 2025 outcomes:
  - Real GDP rose by 1.9 percent in 2025.
  - Inflation averaged 2.2 percent in 2025; service inflation remained elevated.
  - Real wage growth: 6 percent.
  - Budget: surplus for a third consecutive year in 2025.
  - Public debt: declined to around 90 percent of GDP from 134 percent in 2020.
- Near-term outlook:
  - Economic activity projected to slow in 2026 and 2027.
  - 2026 downside factor: negative spillovers from the Middle East conflict offset gains from higher expected EU-funded investments.
  - Early-year severe storms slowed growth; reconstruction efforts should minimize overall annual impact.
  - Current account expected to narrow due to higher commodity prices and weaker external demand.
  - 2027 slowdown mainly reflects the end of Recovery and Resilience Facility investment.
  - Small open economy vulnerabilities: exposure to global disruptions; tourism reliance and EU/EA membership help mitigate risks.

### Housing and Household Vulnerabilities (Box 1 highlights)
- House price dynamics:
  - House prices have risen by 169 percent since 2015 (EA average: 55 percent).
  - House prices rose by 18 percent in the year to September 2025.
  - As of end-June 2025, real house prices were 21 percent above long-term alignment with real GNDI per household.
- Mortgage and household debt:
  - Household indebtedness relative to disposable income has declined markedly over two decades and has been below the EA average since 2022.
  - Household lending growth in 2025: 8.9 percent; mortgage lending grew 9.6 percent in 2025.
  - Ratio of new housing credit to total value of house purchase transactions: about 50 percent.
  - Less than half of house purchases are financed by banks.
- Risks and mitigants:
  - Short-term banking risks from a house price correction are limited but could rise as mortgage lending accelerates.
  - Banks can absorb cumulative house price shocks of 40 percent over three years due to strong capital buffers and improved real estate portfolio risk profile (reflecting borrower-based measures, BBMs).
  - Primary risk implications: direct risks mainly fiscal; second-round macroeconomic effects possible.
- Structural supply and rental market issues:
  - Low construction productivity and the lowest house completions per capita in the EU in 2014-23.
  - Share of non-primary residences is the highest in the OECD; only 12 percent of households rent.
  - Restrictive building regulations, lengthy permit procedures, skill shortages, heavy reliance on transaction taxes, and short-term tourist rentals reduce market responsiveness.
- Policy suggestion:
  - BdP encouraged to study medium- to long-term macrofinancial impacts of recent government measures for first-time homebuyers in addition to analyses already underway.

### Banking Sector Size, Structure, and Key Metrics
- System size and composition:
  - Banking sector assets represent 65 percent of the EUR 775 billion financial system, or 165 percent of GDP, down from 293 percent of GDP at end-2012.
  - Nonbank financial sector assets are 91 percent of GDP, down from 200 percent at end-2010.
  - Government debt accounts for 20percent of banking sector assets.
  - Main nonbank players: captive financial institutions and money lenders; insurance companies, pension funds, and investment funds are smaller relative to the rest of the EA.
- Key banking metrics (end-September/2025 and 2025):
  - Common equity Tier 1 ratio at end-September 2025: 17.7 percent.
  - Annualized return on assets in first three quarters of 2025: 1.3 percent; peaked at 1.5 percent in Q2 2024.
  - Interest-earning assets: 85 percent of total assets.
  - Interest-bearing liabilities: 80 percent of total liabilities.
  - Sight deposits: 29 percent of total liabilities.
  - Lending growth in 2025: 6.8 percent.
  - Loans relative to GDP at end-March 2025: 89.5 percent of GDP (from 191 percent at end-2010).
  - Corporate lending growth in 2025: 2.8 percent.
  - NFC debt at end-September 2025: 104 percent of GDP (down from 176 percent at end-March 2012).
  - Year-on-year EBITDA for NFCs at end-September 2025: 9.2 percent of total assets.
  - Household savings rate: 12.5 percent in June 2025, from 7.3 percent in 2022.
- Credit quality and liquidity:
  - NPLs at end-September 2025: 2.3 percent of total assets (from 17.3 percent at end-2015).
  - Bank NPLs by portfolio at end-September 2025: 1 percent for housing loans to 6.1 percent for consumption loans.
  - Loan loss charge: 0.14 percent of total loans.
  - Aggregate loan-to-deposit ratio: 76 percent at end-September 2025 (down from 123 percent at end-2012).
  - Aggregate banking-sector LCR at end-September 2025: 251 percent (the second highest in the EU).
  - Banks’ asset exposures to NBFIs at end-March 2025: 3.9 percent of total assets (down from 10.1 percent at end-2013).
  - Funding from NBFIs at end-March 2025: 3.9 percent of total liabilities (down from 12.6 percent at end-2013).
  - Spanish bank subsidiaries share of sectoral assets in Portugal: 23 percent.

### Stress Testing Framework, Scenarios, and Methodology
- Institutional perimeter and data:
  - Institutions included: 9 banks (3 SIs, 3 LSIs, 3 foreign subsidiaries) covering 85 percent of banking sector assets.
  - Data vintage: 2025:Q2 (supervisory data including FINREP, COREP; national credit register; SHSG securities database; HFCS 2021 household microdata; company-level CBSD and Central Credit Register data).
- Tail-shock stress test:
  - Horizon: 2026 – 2028 (three years).
  - Scenarios:
    - Baseline: aligned with October 2025 IMF WEO projections.
    - Adverse scenario 1: geopolitical escalation (GFM-based).
    - Adverse scenario 2: recessionary synchronized global slowdown amplified by EA sovereign distress (GFM-based).
  - House price shocks: calibrated at 20 percent (recessionary scenario) and 25 percent (geopolitical scenario) in baseline scenario design; FSAP also analyzed a 40 percent house price shock in sensitivity analysis.
  - Models and channels: satellite models for credit losses, funding costs, lending rates; micro-data based PD estimation for households (HFCS); corporate PDs from company-level CBSD-based models; LGD linked to real estate price paths; interest income/expense modeled by portfolio repricing structure.
- Behavioral assumptions and buffers:
  - Static balance-sheet approach: portfolio sizes remain constant (gross of NPLs) over the horizon; re-issuance of maturing loans at current market rates while maturity structure is kept constant.
  - Provisioning modeled using IFRS 9 transition matrix approach.
  - Capital hurdles considered: (i) “minimum capital hurdle” (Basel III 4.5 percent CET1 plus P2R) and (ii) “combined buffers requirement” (SREP minimum capital requirement plus CCoB and O-SII buffers). CCyB and sSyRB assumed zero in adverse scenarios.
  - Leverage ratio assessed against 3 percent Basel III minimum.

### Solvency Stress Test Results and Sensitivities
- Aggregate CET1 paths:
  - Baseline: 17.7 percent.
  - Geopolitical scenario, first year: falls to 17.1 percent and recovers to 17.8 percent by end of horizon.
  - Recessionary scenario, first year: falls to 16.3 percent.
- Key findings:
  - Combined credit, market, and interest rate shocks do not deplete any bank’s capital buffers under the scenarios.
  - Net interest income (NII) rises markedly under the geopolitical stress scenario and declines in the recessionary scenario.
  - Market losses are contained despite sizeable EA sovereign exposures because most sovereign holdings are held at amortized cost.
  - Sector and all individual banks remain resilient to extreme stress under the assumption of worst historical losses; quasi-reverse stress tests show resilience even under an assumed 40 percent drop in house prices.
- Heterogeneity:
  - Significant institutions (SIs) face higher capital losses and more compressed NII, leading to lower CET1 ratios than other groups.
  - LSIs and foreign subsidiaries display greater resilience—foreign subsidiaries, despite lower initial CET1, generate the largest capital gains over the horizon.
- Sensitivity analyses:
  - System-wide shortfall from revaluation of amortized-cost securities: 0.5 percent of aggregate RWAs.
  - Household stress test: up to 40 percent of households could become overburdened, with 32 percent of bank debt at risk in severe household scenarios.
  - Combined credit losses from sectoral shocks and rising household defaults assessed up to 140 basis points, with banking sector capitalization remaining considerably above minimum capital requirements.
  - Tourism, transportation, and manufacturing sectors account for 11.9 percent of total bank lending; sectoral shocks and household defaults were jointly analyzed.

### Liquidity Stress Tests and Funding Resilience
- Methodology and horizon:
  - Top-down cash flow-based stress tests over horizons from overnight to one year.
  - Scenarios: general risk aversion, sovereign market distress, severe idiosyncratic funding shocks.
- Outcomes:
  - Banks showed robust liquidity counterbalancing capacity.
  - Under milder scenarios all banks maintained positive net liquidity positions over one year; under the severe idiosyncratic shock scenario three banks faced minimal shortfalls.
  - High LCRs and growth in HQLA underpin resilience; aggregate LCR at end-September 2025: 251 percent.

### Corporate and Household Sector Vulnerabilities
- Corporate sector:
  - Vulnerability markedly declined since the European debt crisis due to lower leverage; sectoral heterogeneity remains with construction firms facing highest risks.
- Household sector:
  - Households account for 57 percent of bank loans.
  - In the adverse geopolitical scenario, 25 percent of households become vulnerable, with banks’ debt-at-risk rising to 20 percent.

### Macroprudential Framework, BBMs, and Systemic Risk Monitoring
- Framework strengths:
  - Portugal has a robust macroprudential policy framework underpinned by effective communication and coordination.
- Recent calibrations and instruments:
  - Positive neutral CCyB rate of 0.75 percent introduced in January 2026.
  - Sectoral SyRB addressing residential real estate risks effective since October 2024.
  - O-SII buffer introduced in 2018 and fully applied in 2023.
  - BBMs (including LTV and DSTI limits) in place since 2018.
  - Conservation capital buffer since 2016.
- Observations and suggested refinements:
  - BdP should be granted binding powers over instruments beyond the EU-harmonized toolkit (e.g., BBMs).
  - Multiple BBMs have been successfully employed but could be streamlined given complexity; current BBM toolkit includes three LTV limits, a DSTI limit (with two exceptions), three age-based maturity limits, regular payment requirements, and an average maturity limit for banks.
  - The range of releasable capital for periods of elevated risk should be determined; PCN CCyB rate of 0.75 percent combined with the sectoral SyRB rises to about 1 percent of releasable capital.
  - FSAP sensitivity indicates current PCN rate likely adequate for mild adverse shocks in the neutral phase; more releasable capital may be needed at the cycle peak.

### Supervision of Less Significant Institutions (LSIs) and Nonbank Regulators
- LSI supervision:
  - LSI supervisory framework robust and aligned with SSM methodologies.
  - Needs: consolidate data on findings, severity, follow-ups, and escalations; establish internal supervisory risk tolerance statement; implement prudential limits and standardized reporting for related-party exposures; proportionate corrective actions and sanctions.
  - BdP needs a multi-year staffing strategy to hire and retain specialized mid-career professionals amid expanding mandates.
- Nonbank regulators (ASF, CMVM):
  - ASF and CMVM are financially autonomous and fully self-funded but have limited independence due to inclusion in the state budget framework.
  - Review application of Budget Framework Law’s (LEO) to ASF and CMVM budget execution to allow freer use of resources for staffing, procurement, and expenditures.
  - Board appointment process by the executive alone poses perceived independence risks; adoption of appointment safeguards compatible with the constitutional framework is recommended.

### Cyber Risk Oversight and ICT Resilience
- Current status:
  - Cyber risk oversight framework is strong; supervisory processes follow clear procedures aligned with EU standards.
- Recommendations:
  - Finalize a cyber risk strategy for the financial sector and adopt new-generation cooperation protocols across regulators.
  - Develop a multi-year staffing plan to attract and retain cybersecurity professionals.
  - Standardize information-sharing and incident reporting across the sector.
  - Develop guidance on recovery time and point objectives for critical functions and reinforce institutions’ business continuity policies.

### Financial Safety Net, Resolution, and Crisis Management
- Resolution framework:
  - EU resolution framework transposed into Portuguese law.
  - SRB leads on SIs and cross-border LSIs; BdP handles domestic LSIs and is responsible for resolution execution for both SIs and LSIs.
  - Crisis cooperation protocols between BdP’s resolution department and DSP should be reviewed for early information exchange.
- Tools and past use:
  - Resolution tools: bail-in, sale of business, bridge bank, asset management vehicles.
  - Past usage: sale of business and asset management vehicle for BANIF; bridge bank for BES in 2014-15.
- Recommendations:
  - Strengthen bail-in powers, including enabling bail-in under third-country law.
  - Refine sale of business tool to enable auctioning packages of failed bank assets and deposits to external buyers.
  - Introduce a financial stability exemption for limits on SRF use as recommended by EA FSAP.
  - Implement an administrative bank insolvency regime for LSIs with negative public interest assessment (PIA), including transfer powers and application to cooperatives.
  - Improve decision-making framework for selecting resolution strategies.
- Deposit guarantee (FGD) and crisis coordination:
  - Strengthen FGD governance: exclude banking industry representatives from the board; legally protect board members’ good faith actions; implement a public backstop funding facility; remove government approval for payouts.
  - Enhance FGD payout capacity and create an automatic emergency liquidity backup facility from the MoF or temporarily from BdP.
  - Create a permanent inter-agency body for crisis coordination; finalize trilateral crisis management protocol between BdP, CMVM, and ASF.

### Staffing, Institutional Capacity, and Authorities’ Reactions
- Staffing needs:
  - BdP, ASF, and CMVM require multi-year staffing and retention strategies focused on mid-career professionals and ICT/data/AI skills; additional full-time permanent staff needed for the FGD.
- Authorities’ views:
  - Authorities broadly agreed with FSAP assessment of resilience to severe macrofinancial shocks.
  - Authorities acknowledged rapid house price growth as a key macroeconomic vulnerability but noted mitigating macroprudential measures and the share of housing acquisitions not financed by bank loans.
  - Authorities supported most FSAP recommendations, including reviewing BdP powers, establishing multi-year staffing strategies, exploring legal changes for budgetary independence and board appointments, and adopting integrated cyber and crisis-coordination protocols.
  - Authorities took note of IMF position on considering an administrative insolvency regime for LSIs with negative PIA and endorsed the need to amend legal framework for cooperatives.

### 2026 Key FSAP Recommendations (selected highlights with timing)
- Monitor closely risks from real estate overvaluation, interest rate movements, bank debt portfolios, and vulnerable households. — BdP — ST
- Further develop tools to monitor banking sector risks, including reverse stress testing and interest income models. — BdP — MT
- Develop multi-year staffing and retention strategies for BdP, ASF, and CMVM focused on mid-career professionals and ICT/data/AI skills. — BdP, ASF, and CMVM — ST
- Grant BdP binding powers for non-harmonized (BBM) instruments. — MoF — ST
- Streamline the package of BBMs holistically. — BdP — ST
- Assess releasable capital needs for periods of elevated cyclical risk. — BdP — ST
- Amend legal framework to grant BdP more discretion to apply proportionate enforcement actions. — MoF — MT
- Establish prudential limits on all related-party exposures and require standardized periodic reporting. — MoF, BdP — MT
- Finalize and implement a financial sector cyber strategy and new-generation cooperation protocols across financial regulators. — CNSF, BdP, CMVM, ASF — ST
- Adopt an administrative bank insolvency regime applicable to all financial entities with a negative PIA. — MoF, BdP — MT
- Strengthen FGD governance: exclude banking representatives from the board; legally protect board members’ good faith actions; implement a public backstop funding facility; and remove government approval for payouts. — MoF, BdP — ST
- Timing legend: I: Immediate = less than one year; ST: short term = 1-2 years; MT: medium term = 3–5 years.

*Source: 1prtea2026003 - 2026. The FSAP findings were discussed with the*

### 2026. The FSAP findings were discussed with the

### 1prtea2026003 - 2026. The FSAP findings were discussed with the

### FSAP Team and Consultations
- FSAP team leader: Ranjit Singh.
- Team members included: Silvia Iorgova (Deputy Mission Chief), Jean Christine Armas, Guillaume Arnould, Antonio Pancorbo, and Laura Valderrama (all MCM), Gohar Minasyan (EUR), Arz Murr (LEG), David Hoelscher, Michelle Monsees, and Rhiannon Sowerbutts (external experts).
- Support staff: Meiko Xie (research analyst) and Evelyn Schimpf (administrative support).
- Collaboration: FSAP team collaborated closely with the Portugal Article IV team.
- Principal meetings: Governor Álvaro Santos Pereira (Banco de Portugal, BdP); Minister Joaquim Miranda Sarmento (Minister of State and Finance, MoF); Luís Laginha de Sousa (President/Chair, CMVM); Gabriel Bernardino (President of the Board, ASF); Lino Santos (Head, CNCS); José Oliveira (Vice-Chairman, CNPCE); other senior officials, industry associations, select domestic banks, and private sector representatives.

### Purpose and Scope of FSAP
- FSAP focus: assess the stability of the financial system as a whole, identify key sources of systemic risk, and implement policies to enhance resilience to shocks and contagion.
- Coverage exclusions: Certain categories of risks affecting financial institutions are not covered, including operational or legal risk, or risk related to fraud.

### Executive Summary: Systemic Assessment and Recent Developments
- Overall assessment: Financial stability risks in Portugal remain moderate despite high global uncertainty.
- Banking sector: Dominant in financial landscape; contracted markedly in size since the European debt crisis; banks have boosted capital buffers and shifted to more stable funding sources.
- Systemic risk: Declined; banks exhibit strong profitability and liquidity.
- Credit dynamics:
  - Bank credit growth was sluggish between the early 2010s and late 2024, with credit declining steadily relative to GDP.
  - Credit growth has accelerated since late 2024; risks currently moderate but warrant close monitoring.
- Sovereign-bank nexus: Weakened as banks rebalanced from domestic into euro area (EA) sovereign debt holdings; greater cross-EA exposures could expose banks to EA repricing shocks and should be monitored.

### Housing and Household Vulnerabilities
- House price growth:
  - House prices have risen by 169 percent since 2015 (EA average: 55 percent).
  - House prices rose by 18 percent in the year to September 2025.
- Household indebtedness:
  - Household indebtedness relative to disposable income has declined markedly over the past two decades and has been below the EA average since 2022.
- Impact of a correction:
  - Housing-related risks to financial stability currently subdued due to limited reliance on mortgage lending.
  - FSAP analyses: banks can absorb cumulative house price shocks of 40 percent over three years, supported by strong capital buffers and improved real estate portfolio risk profile (reflecting borrower-based measures, BBMs).
- Risk caveat: Banks’ credit risk could rise if mortgage lending expands significantly and household indebtedness rises.

### Stress Testing and Resilience
- NPLs and capital:
  - Credit quality has significantly improved over the past decade; sharp decline in nonperforming loans (NPLs).
  - Capital positions are strong; profitability high, supported by robust interest income margins and higher efficiency than EA peers.
- Solvency stress tests:
  - Confirm banking sector robustness against severe adverse macroeconomic shocks.
  - Even extreme combined credit, market, and interest rate shocks do not deplete any bank’s capital buffers.
  - Sector and all individual banks remain resilient to extreme stress under the assumption of worst historical losses.
- Sensitivity analyses:
  - Potential impact of the ongoing conflict in Middle East does not change these conclusions.
- Liquidity: Liquidity counterbalancing capacity is robust.

### Macroprudential Framework and Systemic Risk Monitoring
- Framework strengths: Portugal has a robust macroprudential policy framework underpinned by effective communication and coordination.
- Suggested refinements:
  - BdP should be granted binding powers over instruments beyond the EU-harmonized toolkit.
  - Multiple BBMs have been successfully employed but could be streamlined given complexity.
  - A positive cycle neutral (PCN) rate for the countercyclical capital buffer (CCyB) has been introduced and calibrated for risks in normal times.
  - The range of releasable capital for periods of elevated risk should be determined.

### Supervision of Less Significant Institutions (LSIs)
- Alignment: LSI supervisory framework is robust and aligned with SSM methodologies.
- Areas for further attention:
  - Consolidate data on findings, severity, follow-ups, and escalations to ensure consistency of supervisory judgment across LSIs.
  - Establish an internal supervisory risk tolerance statement to improve prioritization and resource allocation.
  - Implement further prudential limits and standardized reporting for related-party exposures, and proportionate corrective actions and sanctions.
  - BdP needs a multi-year staffing strategy to address hiring and retention of specialized mid-career professionals amid expanding mandates.

### Independence and Resources of Nonbank Regulators
- Legal constraints:
  - ASF and CMVM are financially autonomous and fully self-funded but have limited independence due to inclusion in the state budget framework.
  - Review of Budget Framework Law’s (LEO) application to ASF and CMVM budget execution would allow freer use of resources for staffing, procurement, and expenditures.
  - Board appointment process: Appointment of ASF and CMVM boards by the executive alone poses perceived independence risks; adoption of appointment safeguards compatible with the constitutional framework is needed.

### Cyber Risk Oversight
- Current status: Cyber risk oversight framework is strong; supervisory processes follow clear procedures aligned with EU standards.
- Recommendations:
  - Finalize a cyber risk strategy for the financial sector and adopt new-generation cooperation protocols across regulators to strengthen integrated supervisory oversight.
  - Develop a multi-year staffing plan to attract and retain cybersecurity professionals.
  - Standardize information-sharing and incident reporting across the sector.
  - Develop guidance on recovery time and point objectives for critical functions and reinforce institutions’ business continuity policies.

### Financial Safety Net and Crisis Management
- Preparedness improvements: Portugal has improved crisis preparedness and management, but further progress is needed.
- Specific recommendations:
  - BdP should develop a staffing strategy to retain specialized staff.
  - Strengthen bail-in powers and refine the sale of business tool.
  - Amend legal framework for cooperatives to enable coordinated resolution of cooperatives.
  - Introduce an administrative insolvency regime for LSIs with negative public interest assessment (PIA) to prevent asset value erosion.
  - Enhance FGD functioning and establish a public liquidity backstop facility.

### Macrofinancial Background and Outlook
- 2025 macro outcomes:
  - Real GDP rose by 1.9 percent in 2025, mainly driven by private consumption.
  - Inflation declined to an average of 2.2 percent in 2025; service inflation remained elevated.
  - Real wage growth: 6 percent.
  - Public finances: Budget recorded a surplus for a third consecutive year in 2025.
  - Public debt: Declined to around 90 percent of GDP from 134 percent in 2020.
- Near-term outlook:
  - Economic activity projected to slow in 2026 and 2027.
  - 2026 downside factor: Negative spillovers from the Middle East conflict offset gains from higher expected EU-funded investments.
  - Early-year severe storms slowed growth; reconstruction efforts should minimize overall annual impact.
  - Current account: Expected to narrow due to higher commodity prices and weaker external demand.
  - 2027 outlook: Slowdown mainly reflects the end of Recovery and Resilience Facility investment.
  - Small open economy vulnerabilities: Exposed to global disruptions that could reduce growth and increase inflation; tourism reliance and EU/EA membership help mitigate risks.

### 2026 Key FSAP Recommendations (selected highlights with timing)
- Monitor closely risks from real estate overvaluation, interest rate movements, bank debt portfolios, and vulnerable households. — BdP — ST
- Further develop tools to monitor banking sector risks, including reverse stress testing and interest income models. — BdP — MT
- Develop multi-year staffing and retention strategies for BdP, ASF, and CMVM focused on mid-career professionals and ICT/data/AI skills. — BdP, ASF, and CMVM — ST
- Grant BdP binding powers for non-harmonized (BBM) instruments. — MoF — ST
- Streamline the package of BBMs holistically. — BdP — ST
- Assess releasable capital needs for periods of elevated cyclical risk. — BdP — ST
- Amend legal framework to grant BdP more discretion to apply proportionate enforcement actions. — MoF — MT
- Establish prudential limits on all related-party exposures and require standardized periodic reporting. — MoF, BdP — MT
- Finalize and implement a financial sector cyber strategy and new-generation cooperation protocols across financial regulators. — CNSF, BdP, CMVM, ASF — ST
- Adopt an administrative bank insolvency regime applicable to all financial entities with a negative PIA. — MoF, BdP — MT
- Strengthen FGD governance: exclude banking representatives from the board; legally protect board members’ good faith actions; implement a public backstop funding facility; and remove government approval for payouts. — MoF, BdP — ST
- Timing legend: I: Immediate = less than one year; ST: short term = 1-2 years; MT: medium term = 3–5 years.

*Source: 1prtea2026003 - 2026. The FSAP findings were discussed with the*

### 3.      The financial system is bank-dominated and has contracted considerably in recent

### 3.      The financial system is bank-dominated and has contracted considerably in recent

### Overview of the financial system
- Banking sector assets represent 65 percent of the EUR 775 billion financial system, or 165 percent of GDP, down from 293 percent of GDP at end-2012.
- Government debt accounts for 20percent of banking sector assets.
- Nonbank financial sector assets are 91 percent of GDP, down from 200 percent at end-2010.
- Main nonbank players: captive financial institutions and money lenders; insurance companies, pension funds, and investment funds have a smaller presence compared to the rest of the EA.

### Banking sector resilience and profitability
- Common equity Tier 1 ratio at end-September 2025: 17.7 percent.
- Annualized return on assets in first three quarters of 2025: 1.3 percent; peaked at 1.5 percent in Q2 2024.
- Interest-earning assets comprise 85 percent of total assets; interest-bearing liabilities comprise 80 percent of total liabilities.
- Funding composition: sight deposits = 29 percent of total liabilities.
- Deposit-driven funding: sight deposit remuneration close to zero; term deposits track the Euribor.
- Banks’ large deposit base and high policy rate pass-through to lending rates underpin profitability.

### Credit and balance-sheet dynamics
- Lending growth in 2025: 6.8 percent.
- Loans relative to GDP at end-March 2025: 89.5 percent of GDP (from 191 percent at end-2010).
- Household lending growth in 2025: 8.9 percent; mortgage lending grew 9.6 percent in 2025.
- Corporate lending growth in 2025: 2.8 percent.
- NFC debt at end-September 2025: 104 percent of GDP (down from 176 percent at end-March 2012).
- Year-on-year EBITDA for NFCs at end-September 2025: 9.2 percent of total assets.
- Household savings rate: 12.5 percent in June 2025, from 7.3 percent in 2022.

### Credit quality and systemic risk indicators
- Nonperforming loans (NPLs) at end-September 2025: 2.3 percent of total assets (from 17.3 percent at end-2015).
- Bank NPLs by portfolio at end-September 2025: 1 percent for housing loans to 6.1 percent for consumption loans.
- Loan loss charge: 0.14 percent of total loans.
- Aggregate loan-to-deposit ratio: 76 percent at end-September 2025 (down from 123 percent at end-2012); rose slightly at end-September 2025 with lending growth.
- Aggregate banking-sector LCR at end-September 2025: 251 percent (the second highest in the EU).
- Banks’ asset exposures to NBFIs at end-March 2025: 3.9 percent of total assets (down from 10.1 percent at end-2013).
- Funding from NBFIs at end-March 2025: 3.9 percent of total liabilities (down from 12.6 percent at end-2013).
- Spanish bank subsidiaries share of sectoral assets in Portugal: 23 percent.

### Risks from external shocks and geopolitical developments
- Ongoing Middle East conflict: likely limited direct impact; potential second-round effects via cost-of-living pressures, reduced tourism/manufacturing/transport receipts, energy shocks, inflation, and higher interest rates.
- Low-income households bear highest burden but account for a limited share of mortgage borrowers.
- Higher interest rates can improve bank profitability through higher NII.

### Bank stress testing and systemic risk analysis — scenarios and methodology
- Three macrofinancial scenarios assessed: baseline aligned with October 2025 IMF WEO; two severe adverse scenarios (recessionary and geopolitical) consistent with EA FSAP and simulated via the IMF's Global Macro Financial Model (GFM).
- Adverse scenarios include synchronized global downturn or escalating geopolitical conflict, severe house price corrections, market risk shocks, and assumed rise in EA sovereign credit spreads.
- House price shocks calibrated at 20 percent (recessionary scenario) and 25 percent (geopolitical scenario).
- As of end-June 2025, real house prices were 21 percent above long-term alignment with real GNDI per household.

### Solvency stress test results
- Aggregate CET1 ratios:
  - Baseline: 17.7 percent.
  - Geopolitical scenario, first year: falls to 17.1 percent and recovers to 17.8 percent by end of horizon.
  - Recessionary scenario, first year: falls to 16.3 percent.
- Combined credit, market, and interest rate shocks do not deplete any bank’s capital buffers.
- Net interest income (NII) dynamics: rises markedly under the geopolitical stress scenario and declines in the recessionary scenario.
- Market losses contained despite sizeable EA sovereign exposures because most sovereign holdings are held at amortized cost.
- Sector remains resilient even under quasi-reverse stress tests and extreme shocks (including analysis noting resilience under an assumed 40 percent drop in house prices).

### Heterogeneity of bank impacts
- Significant institutions (SIs) face higher capital losses and more compressed NII, leading to lower CET1 ratios than other groups.
- LSIs and foreign subsidiaries display greater resilience—foreign subsidiaries, despite lower initial CET1, generate the largest capital gains over the horizon.

### Sensitivity analyses and concentration risk
- Single-factor shock analyses: concentrated exposures primarily to NFCs across multiple sectors; credit risk mitigation (CRM) measures materially reduce net exposures.
- System-wide shortfall from revaluation of amortized-cost securities: 0.5 percent of aggregate RWAs.
- Analyses of spillovers from Middle East conflict:
  - Tourism, transportation, and manufacturing sectors account for 11.9 percent of total bank lending.
  - Household stress test indicates up to 40 percent of households could become overburdened, with 32 percent of bank debt at risk.
  - Combined credit losses from sectoral shocks and rising household defaults assessed up to 140 basis points, with banking sector capitalization remaining considerably above minimum capital requirements.

### Liquidity risk and funding stress tests
- Cash flow-based stress tests covered three scenarios: general risk aversion, sovereign market distress, and severe idiosyncratic funding shocks over horizons from overnight to one year.
- Banks showed robust liquidity counterbalancing capacity.
- Under milder scenarios all banks maintained positive net liquidity positions over one year; under the severe idiosyncratic shock scenario three banks faced minimal shortfalls.
- High LCRs reflect sustained growth in high-quality liquid assets (HQLA).

### Corporate and household sector vulnerabilities
- Corporate sector: vulnerability markedly declined since the European debt crisis due to lower leverage; vulnerabilities vary across firm size and sector (construction firms face highest risks).
- In the adverse geopolitical scenario, 25 percent of households become vulnerable, with banks’ debt-at-risk rising to 20 percent.
- Households account for 57 percent of bank loans.

### Housing market vulnerabilities
- House prices rose by 169 percent since 2015 (EA average: 55 percent); up by 18 percent in the year to end-September 2025.
- Ratio of new housing credit to total value of house purchase transactions: about 50 percent.
- Mortgage lending has grown considerably more slowly than house prices historically, but mortgage growth has outpaced the EA average since 2023.
- Persistent deviation of house prices from long-term equilibrium relative to income suggests structural drivers dominate housing market imbalances.
- Direct credit risks are mitigated by less than half of house purchases being financed by banks, but broader economic effects and recent reversal in the bank lending cycle warrant close monitoring.

### Selected policy and supervisory considerations (as reported)
- Close monitoring of rapid house price growth and the recent reversal in the lending cycle.
- Monitor banks’ rising exposure to other EA countries’ sovereign debt and concentration risk.
- Further deepen Banco de Portugal’s reverse stress testing capacity and develop tools for analysis of macrofinancial feedbacks and net interest income dynamics.

*Source: IMF Financial Stability Assessment (excerpt).*

### Box 1. Portugal: Housing Market Vulnerabilities: Key Issues and Policy Considerations

### Box 1. Portugal: Housing Market Vulnerabilities: Key Issues and Policy Considerations

### Structural housing supply bottlenecks
- Since the European debt crisis, housing supply has become less responsive to price changes, reflecting structural shifts in the sector.
- Productivity in the construction sector is low; house completions per capita in 2014-23 were the lowest in the EU.
- Inefficiencies arise from:
  - skill shortages and mismatches,
  - restrictive building regulations,
  - lengthy permit procedures.
- Heavy reliance on transaction taxes over recurrent property taxes discourages sales of underused properties.
- Use of properties for short-term tourist rentals—especially in tourist-heavy areas—reduces sales of existing properties without boosting new construction.

### Structural rental market issues
- Housing stock per capita is high despite limited new construction.
- The share of non-primary residences is the highest in the OECD.
- The rental market is small: 12 percent of households rent.
- Rental regulation features that contribute to imbalances:
  - rental caps and stricter regulations for older rental contracts have contributed to the decoupling of house prices from rents since the European debt crisis,
  - rent rigidity discourages long-term rentals and increases demand for house purchases.

### Government measures and observed effects
- Recent government initiatives aim to improve affordability and revitalize construction by simplifying procedures and offering tax incentives.
- Measures to support young first-time homebuyers include:
  - a public guarantee covering up to 15 percent of the home value,
  - exemptions from municipal tax and stamp duty.
- High-level estimates suggest these measures have likely contributed to house price increases without significantly boosting house purchases.

### Banking, macrofinancial risks, and policy considerations
- Short–term banking risks from a house price correction are limited but could rise as housing lending accelerates.
- Channels of impact:
  - direct: banks’ mortgage exposures,
  - indirect: broader economic spillovers.
- Current mitigants:
  - strong capital buffers,
  - improved risk profiles of banks’ real estate portfolios,
  - support from BBMs since 2018.
- New government guarantee scheme for first-time homebuyers has increased LTV ratios and loan maturities.
- Primary risk implications:
  - direct risks are mainly fiscal,
  - second-round macroeconomic effects are possible.
- BBMs:
  - are unlikely to influence the housing market due to credit’s limited role in house transactions,
  - strengthen household and bank resilience, mitigating macrofinancial spillovers.
- Recommendation: BdP is encouraged to conduct a study of the possible medium- to long-term macrofinancial impacts of the government measures on financial stability, in addition to analyses it is already conducting.

### Broader macroprudential and supervisory context (selected points)
- BdP’s analytical toolkit and models include multiple quantile regression ("at risk"), house price valuation, machine learning, DSGE models, a core bank solvency stress testing model, and a liquidity stress testing model that needs refinement to better capture short-term liquidity shocks and interbank interactions.
- Data collection is high-quality but limited to ad hoc analyses and should be expanded to regular data gathering.
- Institutional powers and toolkit:
  - BdP controls EU-harmonized instruments like the CCyB and O-SII buffers but lacks binding powers beyond these for tools such as BBMs; BdP should be granted binding powers by legislators to enforce instruments beyond the EU-harmonized toolkit.
- Recent macroprudential calibrations and instruments:
  - a positive neutral CCyB rate of 0.75 percent introduced in January 2026,
  - sectoral SyRB addressing residential real estate risks effective since October 2024,
  - O-SII buffer introduced in 2018 and fully applied in 2023,
  - BBMs (including LTV and DSTI limits) in place since 2018,
  - conservation capital buffer since 2016.
- Capital resilience focus:
  - the PCN CCyB rate of 0.75 percent is appropriate in the current “normal” phase and, when combined with the sectoral SyRB, rises to about 1 percent of releasable capital when combined with the sectoral SyRB, also releasable under stress.
  - FSAP sensitivity analysis shows that credit losses are not highly sensitive to scenario variations of equal severity; the current PCN rate thus likely adequately guards against mild adverse shocks in the neutral cycle phases.
  - The extent of releasable capital needed for the “elevated” risk phase is yet to be determined; significantly more capital may be needed at the cycle’s peak compared to the neutral phase, especially given many Portuguese banks are foreign subsidiaries that do not raise equity through capital markets.
- BBM complexity and recommendation:
  - current BBM toolkit includes three LTV limits, a DSTI limit (with two exceptions), three age-based maturity limits, regular payment requirements, and an average maturity limit for banks,
  - a comprehensive review and streamlining of these measures is recommended to reduce administrative complexity and improve compliance monitoring and enforcement while maintaining resilience.

*Source: Box 1. Portugal: Housing Market Vulnerabilities: Key Issues and Policy Considerations (concluded), extracted content.*

### 43.      BdP’s resolution function is well-established, though several areas such as staff

### 1prtea2026003 - 43.      BdP’s resolution function is well-established, though several areas such as staff

### Resolution framework and BdP responsibilities
- The EU resolution framework is transposed into Portuguese law.
- BdP and the Single Resolution Board (SRB) share responsibility for bank resolution:
  - SRB leads on SIs and cross-border LSIs.
  - BdP handles domestic LSIs.
- BdP is responsible for resolution execution for both SIs and LSIs.
- Crisis cooperation protocols between BdP’s resolution department and DSP should be reviewed to ensure early information exchange.
- Legal reforms are needed to improve cooperative groups’ resolvability by enabling joint resolution of their central body and affiliated cooperatives.

### Staffing and institutional capacity
- BdP staff retention is a notable challenge requiring a multi-year staffing strategy to retain specialized personnel and maintain stable staff levels.
- Additional full-time permanent staff are required for the FGD.
- Regulators recognized the need to develop strategies to attract and retain skilled professionals and enhance information-sharing, as well as consolidate incident reporting across the financial sector.

### Resolution tools, past usage, and suggested enhancements
- Implemented resolution tools include bail-in, sale of business, bridge bank, and asset management vehicles.
- BdP has used:
  - the sale of business and asset management vehicle tools to resolve BANIF;
  - the bridge bank tool for BES in 2014-15.
- Bail-in powers can be strengthened:
  - The legal framework allows bail-in of securities within the EU.
  - BdP is working to enable bail-in under third-country law.
- Recommendation: further refine the sale of business tool to enable BdP to auction packages of failed bank assets and deposits to external buyers during resolution or liquidation.

### Resolution funding and policy recommendation
- Resolution funding will mainly come from the EU’s Single Resolution Fund (SRF), subject to strict limits on minimum use of the bank’s own funds and subject to maximum SRF contribution.
- Recommendation: introduce a financial stability exemption for these limits, as recommended by the recent EA FSAP.

### Insolvency treatment for LSIs and recommended regime change
- LSIs with negative PIA are liquidated through the corporate insolvency regime, which is inefficient.
- Court-based insolvency proceedings are slow, raising the risk of asset value erosion.
- Recommendation: implement an administrative bank insolvency regime which includes transfer powers for institutions with negative PIA, including cooperatives.
- Recommendation: improve the decision-making framework for selecting resolution strategies to better manage the liquidation of entities with negative PIA.

### Deposit guarantee (FGD) governance, funding backup, and payout capacity
- FGD’s governance and effectiveness should be strengthened:
  - FGD Board should exclude banking industry representatives to prevent conflicts of interest.
  - Remove government involvement in FGD’s decision-making—such as portfolio requirements and MoF expense approvals.
  - FGD’s payout capacity should be gradually enhanced.
- Funding backup mechanisms:
  - Create an automatic emergency liquidity backup facility from the MoF, or temporarily from BdP.

### Crisis coordination and inter-agency arrangements
- A permanent inter-agency body should be created to ensure coordination of crisis policy responses.
- Current arrangements are mainly bilateral; CNSF holds a crisis-coordination mandate but BdP is the primary technical and operational authority in crises (except when risks involve non-banks).
- BdP coordinates with MoF, CMVM, and SRB and oversees bank resolution.
- BdP, CMVM, and ASF have agreed to develop a trilateral crisis management protocol for cooperation in recovery and resolution planning and implementation of actions, which should be finalized.

### Authorities’ views and reactions to FSAP findings
- The Portuguese authorities greatly appreciated the FSAP engagement and the collaborative spirit of discussions.
- They broadly agreed with the systemic risk assessment and FSAP stress test findings that the banking system is resilient to severe macrofinancial shocks from solvency and liquidity perspectives.
- Authorities’ key observations:
  - Banks' high structural profitability and risk-off stance over the past decade support their soundness under stress.
  - Rapid house price growth in the past decade is a key macroeconomic vulnerability.
  - Risks to the banking sector are mitigated by macroprudential measures on residential mortgage lending in force since 2018 and by the share of housing acquisitions not financed through bank loans.
  - IMF’s tail shock exercise for the residential real estate market indicates resilience of Portuguese banks to adverse developments in this sector.
  - High share of bank investments in euro-area sovereign debt securities does not pose a risk according to authorities, who cite well-diversified portfolios across countries.
  - Household default risks remain muted, reflecting decade-long deleveraging and adequate macroprudential BBMs.
- On policy recommendations, authorities:
  - Supported most FSAP recommendations and reaffirmed commitment to strengthening financial sector resilience.
  - Recognized value of defining a range of releasable capital for periods of elevated risks but reiterated that the PCN rate for the CCyB is appropriately set.
  - Agreed about reviewing BdP powers over non-harmonized tools.
  - Endorsed establishment of a multi-year staffing and retention strategy (also beyond the supervisory function).
  - Supported need to explore legal changes to rules on the budgetary independence of nonbank financial regulators and board appointments.
  - Concurred with findings on financial integrity and the need to leverage international cooperation to refine ML/TF risk monitoring.
  - Welcomed FSAP assessment of cyber security oversight as robust and concurred on adopting an integrated sector-wide strategy and cooperation protocols.
  - Took note of IMF position on considering introduction of an administrative insolvency regime for LSIs with negative PIA and endorsed the need to amend the legal framework for cooperatives.
  - Supported further strengthening FGD’s payout process over time while considering existing tools as globally adequate.

*INTERNATIONAL MONETARY FUND*

### 1. Institutional

### 1. Institutional

### Perimeter
- Institutions Included:
  - 9 banks, of which 3 are SIs, 3 are LSIs and 3 are foreign bank subsidiaries.
- Market Share:
  - 85 percent of the banking sector assets.
- Data and Baseline Date:
  - Data vintage: 2025:Q2.
  - Supervisory data: Bank balance sheet and supervisory statistics (including FINREP and COREP), information on interest rate risk in the banking book (IRRBB), short-term exercise (STE), provided by the ECB.
  - Data from Banco de Portugal: (i) historical PDs, loan portfolio maturity structure and interest rates derived from national credit register, and (ii) debt portfolio maturity structure disaggregated by sector, country and accounting treatment derived from the granular securities portfolio database (SHSG).
  - Household analysis relies on household survey microdata from the 2021 (latest) HFCS survey, covering 83,000 households across 22 countries (EA, CZ, and HU) and 200,000 personal files. Montecarlo simulations of unemployment shocks at the person level. Projections of households’ balance sheets, consumption, and debt repayments, allowing for new issuances of maturing loans.
  - Corporate analysis: data from Orbis, Capital IQ and disaggregated data series derived from company-level data from Portugal’s Central Balance Sheet Database (CBSD) and Central Credit Register were used. The data is annual and covers 2006-24. Company-level data from CBSD was also used in an exercise performed by BdP in a partnership with the IMF team.
  - Real estate analysis: publicly available data from INE (Portuguese National Institute of Statistics), Bank of Portugal, and Eurostat.
  - Market and publicly available data, such as information from ECB’s MIR on funding and lending rates for new businesses by type of asset and funding portfolios, complemented with commercial databases such as Capital IQ.
  - Scope of consolidation: highest level of consolidation for banks having their headquarters in Portugal and sub-consolidation level of all Portuguese activity for foreign subsidiaries.
  - Coverage of sovereign and non-sovereign securities exposures: debt securities measured through fair value (FVPL and FVOCI) and amortized cost (AC) account.

### Channels of Risk Propagation
- Methodology:
  - FSAP team satellite models and methodologies.
  - For internally modelled exposures (IRB), projection of PiT and TTC PDs, PiT and DT LGDs, EAD, and RWA. For SA exposures, projection of new flows of defaulted exposures and RWA based on risk weights for performing and nonperforming loans separately. Provisioning for IRB and SA modeled using IFRS 9 transition matrix approach.
  - Static balance-sheet approach, allowing the re-issuance of maturing loans at current market rates, keeping the maturity structure constant.
  - Provisioning for IRB and SA are modeled using IFRS9 transition matrix approach.
  - Traded risk impact from the revaluation of debt securities held at fair value (FVPL and FVOCI, excluding hedging instruments) assessed the interest rate and credit risk deltas projected in the market scenarios. The market stress scenarios are one-off shocks, happening at the start of the scenarios and whose narrative is aligned to the macro scenarios (e.g., in the geopolitical scenario, the one-off market stress event features higher interest rates and commodity prices, while the opposite occurs in the recessionary scenario). Risk factors include interest rate, commodity, equity, FX, and credit spread.
- Satellite Models for Macrofinancial Linkages:
  - Models for credit losses, funding costs, lending rates:
    - Within EA, for household, PD are estimated using micro-data at individual household (based on household survey, HFCS). For Poland (the only material non-EA country), PDs are estimated as a weighted average of peer countries. Corporate PDs are estimated using Tressel and Ding (2021) based on company-level data from Portugal’s Central Balance Sheet Database (CBSD) and Central Credit Register were used. The data is annual and covers 2006-24.
    - LGD shocks for collateralized exposures are linked to paths for real estate prices in the scenario using a smoothing factor to account for the TTC regulatory approach.
    - Interest income and expense projected at the portfolio segment level using a structural approach applying interest rate shocks on new business and the repricing structure of the portfolio.

### Tail Shocks Stress Test
- Horizon:
  - 2026 – 2028 (three years)
- Scenario:
  - Three scenarios:
    - A baseline scenario drawn from the October 2025 WEO macroeconomic projections.
    - Adverse scenario 1: A geopolitical scenario featuring an escalation of geopolitical conflicts.
    - Adverse scenario 2: A recessionary scenario showing a synchronized global slowdown amplified by sovereign debt distress in EA.
  - The two adverse scenarios rely on GFM, a structural macro econometric model of the world economy, disaggregated into 40 national economies, documented in Vitek (2015).
- Second-round Effects and Sensitivity Analysis:
  - Household ‘consumption at risk,’ defined as the consumption of “economically vulnerable households” (for which the sum of debt service and consumption exceeds gross income) as a share of aggregate consumption. The elasticity of unemployment to changes in consumption will be used to test second-round effects on default risk.

### Risks and Buffers
- Risk Covered:
  - Risks covered include credit (on loans and debt securities), market (valuation impact of financial instruments with respect to market risk factors such as interest rates, foreign exchange, credit spread, equity prices) and interest rate risk.
  - Sensitivity analyses on revaluation of debt securities portfolio held at amortized cost, quasi-reverse stress test on credit risk using more severe PDs, and assessment of large exposures.
- Behavioral Adjustment:
  - Static balance sheet approach: size of portfolios (gross of NPLs) remains constant throughout the stress testing horizon (with no write-offs allowed).
  - In projecting RWAs, standardized and IRB portfolios are differentiated. For the standardized portfolios, RWAs change due to the shift in the composition of performing and non-performing exposures. For the IRB portfolios, through-the-cycle-PDs, downturn LGDs and EAD for each asset class/industry are used to project risk weights.
  - Interest income from nonperforming loan is not accrued.
  - Dividends are paid out by banks that remain profitable and adequately capitalized. The tax rate is based on historical bank-level tax rate, while the dividend rate is set at 80 percent to account for the transfer of profits from the foreign subsidiaries to the headquarter.

### Regulatory and Market-based Standards and Parameters
- Capital hurdles:
  - Consider two hurdle rates: (i) ”minimum capital hurdle” consists of SREP capital requirements (the Basel III 4.5 percent CET1 ratio) plus P2R; and (ii) “combined buffers requirement” includes the SREP minimum capital requirement and the CCoB and O-SII capital buffers. The CCyB and sSyRB are assumed to be zero in the adverse scenarios.
- Leverage ratio:
  - Leverage ratio during the stress test horizon assessed against the 3 percent Basel III minimum requirement.

### Reporting Form for Results
- Output Presentation:
  - Aggregate capital path for each scenario by groups of banks, categorized by bank groups.
  - Outputs also include information on impact of different result drivers, including profit components.

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### Banking Sector: Liquidity Test (Top-Down by FSAP Team)

### Institutional Perimeter
- Institutions Included:
  - 9 banks, of which 3 are SIs; 3 are LSIs; and 3 are foreign bank subsidiaries.
- Market Share:
  - 85 percent of the banking sector assets.
- Data and Horizon:
  - Data vintage: 2025Q2.
  - Data: Supervisory data from Implementing Technical Standards (ITS) files (COREP).
  - Scope of consolidation: highest level of consolidation for banks having their headquarters in Portugal and sub-consolidation level of all Portuguese activity for foreign subsidiaries.

### Methodology
- Methodology:
  - Structural analysis: evolution of LCR, NSFR, asset encumbrance, and funding structure.
  - Dynamic analysis: Cash flow-based stress test.
- Stress Test Horizon:
  - 1-year horizon for cash flow analysis.

### Type of Analyses
- Scenario Analysis:
  - For cash flow liquidity stress tests, various stress scenarios are considered, including general risk aversion, market sovereign distress, and idiosyncratic funding to examine potential liquidity shortfalls from overnight up to one-year horizon.

### Buffers
- Buffers:
  - Capacity of banks to generate liquidity from inflows and from assets under stress (i.e., counterbalancing capacity).

### Regulatory Standards
- Regulatory/Accounting and Market-based Standards:
  - For the LCR and NSFR, the hurdle rate is set at 100 percent at the aggregate currency level (per Basel III and domestic regulation). For cashflow analysis, the outcomes of interest are the Net Liquidity Position and the survival period.

### Reporting Format for Results
- Output Presentation:
  - Output includes (i) descriptive analysis of LCR, NSFR, asset encumbrance, funding structure, and stock of CBC; and (ii) Net liquidity position over the horizon for the cash flow analysis.

*Source: 1prtea2026003 - 1. Institutional*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1prtea2026003.pdf_