Governor of Bank of Portugal demands €1Bn buffer from banks

 In Bank of Portugal, Banks, Capital contingency, News

From January 2026 Portugal’s banks will have to collectively set aside an extra €1Bn in reserves to meet current regulatory conditions.

The decision, the banks say, could hamper their ability to pay out shareholder dividends.

The Bank of Portugal (BdP) has decided to increase the amount of reserves set aside to buffer them against a downturn to 0.75%. The measure on reserves have been in place since 2016, but was never actioned and has always stood at 0%.

In practice, the measure has never had an impact on the banking system in Portugal, but the supervisor has justified the change on lessons learnt from the COVID-19 pandemic which demonstrated the need to to bolster the financial buffer of the banks to external shocks such as the geo-economic fragmentation risks that arose during the pandemic.

The amount of reserves that the banking system will have to stump up has been set at around €1Bn according to business daily Negócios, which the Portuguese Banking Association (APB) has called “a ballpark estimate” and says it does not have “the total amount” that each of the banking institutions will have to set aside, and does not have sufficient information to make “an exact estimate since it has not received the exact details of the Bank of Portugal notice.”

The percentage of of Risk-Weighted Assets to be applied to each bank will be calculated based on each bank’s balance in January 2026, so it is not yet known how much each bank will have to set aside in reserves.

Nevertheless, it can be estimated that the amounts banks will have to set aside for a rainy day will range from €50 million to €200 million.

The reserve is an additional buffer to the Common Equity Tier 1 funds that banks have to set aside to offset exposure to sour loans from both companies and families.