Portuguese banks under EBA spotlight

Portugal’s seven largest banks must submit a report to the European banking supervisor containing detailed data that will enable Brussels to evaluate the risk of high interest rates on their respective balances.

The banks involved are Caixa Geral de Depósitos, BCP, Santander, Novo Banco, BPI, Banco Montepio and Credit Agrícola are among the 153 European financial institutions that the European Banking Authority (EBA) wants to examine.
“The EBA will on an ad-hoc basis collect data on the risk of higher interest rates on bank portfolios”, reads a statement from the institution. The data will provide the necessary information for it to be able to analyse the risks resulting from interest rate changes.
The aim is to provide the supervisory authorities with data that will permit them to monitor risk exposure to the current climate of high inflation and increases in interest rates in a timely fashion.
The banks affected are those who have taken part in a quantitative impact study exercise (QIS) that includes seven Portuguese banks. The EBA will then calculate the level of risk across six shock scenarios that could arise from successive interest rate changes.
Two of the main kinds of interest rate risk banks face as the market interest rates move include: Price risk: The market value of bonds or assets falls when interest rates rise. Reinvestment risk: Falling interest rates make interest payments (coupons) of bonds to be reinvested at lower rates.
In July the EBA published the results of its 2023 EU-wide banking stress test which showed that European banks remain resilient under an adverse scenario which combines severe EU and global recession, increasing interest rates and higher credit spreads.
Current rules in Portugal stipulate that financial institutions that operate in the country must report to the Bank of Portugal information relative to risk exposure on their portfolios from high interest rates.