Portuguese banks show mixed results in ECB ‘stress tests’.

Three Portuguese banks were among national banks to be ‘stress tested’ in terms of their overall financial health by the European Central Bank.

Caixa Geral de Depósitos (CGD), BCP, and Novobanco (through Nani Investments) were examined because they fall under the direct supervision of the ECB as significant institutions.
European Banking Supervision uses stress tests to assess how well banks are able to cope with financial and economic shocks. Stress test results help supervisors identify banks’ vulnerabilities and address them early on in the supervisory dialogue with banks.
EU law requires the ECB to carry out stress tests on supervised banks at least once per year. The results of annual stress tests provide important input to the SREP (Supervisory Review and Evaluation Process) for the test year.
According to its final results, the European banking supervisor reduced its Pillar 2 requirements for State-owned Caixa Geral de Depósitos from 2.25% to 2% this year which in layman’s terms means the bank is today in a more solid position than it was last year.
However, the requirements were tougher for BCP for which ECB requirements increased from 2.25% to 2.5%. That means that the bank led by Miguel Maya will have to strengthen its capital airbag by 0.5%.
Both banks announced last week that they would meet requirements while Caixa said it was “robustly solvent” while BCP stated it “comfortably complies” with the required core capital ratios.
As to Novobanco, the level required remains at 3% (Pillar 2), the highest of the three. As to Caixabank, which owns BPI, its Pillar 2 requirements climbed from 1.5% in 2021 to 1.65%.
Santander which controls Totta has stayed at the same level of 1.5% that it had to meet last year.
ECB Core Credit regulations are divided into three pillars concerned with minimum capital requirements, supervisory review and market discipline. Under Pillar 1, firms must calculate minimum regulatory capital for credit, market and operational risk.
The Pillar 2 Guidance is a bank-specific recommendation that indicates the level of capital that the ECB expects banks to maintain in addition to their binding capital requirements. It serves as a buffer for banks to withstand stress.