IMF starts top-down evaluation of Portugal’s financial system

The International Monetary Fund (IMF) has begun an exhaustive analysis of Portugal’s banking and financial system to identify vulnerabilities, carry out stress tests under crisis, and a complete exam of its supervisory capabilities.

The last such test was carried out 20 years ago, and the current report should be ready at some time next year and will include recommendations.

Portugal will also join a group of systemically important countries that will be evaluated every five years.

Locally, the exercise will be spearheaded by the Bank of Portugal, but will also include input from the Portuguese securities market supervisor CMVM, and the Ministry of Finances.

Other entities will also be involved such as the Commission for the Coordination of Policies of Prevention and Combat of Capital Laundering, Financing of Terrorism, the Portuguese Association of Banks, and financial institutions according to the online news source ECO.

The first meetings with the IMF mission took place on Wednesday and will continue until today (Monday, June 2)

The Financial Sector Assessment Program (FSAP) in Portugal will focus on some of the issues that are being analysed in the IMF’s assessment of the Eurozone, such as monitoring systemic risk in banking and non-banking institutions, interconnectivity, contagion and risks related to geopolitical issues, cybersecurity, monetary policy transmission, financing costs, credit growth or liquidity.

In the case of Portugal, the IMF will pay special attention to the exposure of the banking sector to real estate, which represents 25% of the sector’s asset value, and whose prices are considered overinflated.

In the Financial Stability Report released last week, the Bank of Portugal notes the “relevant exposure” to real estate, but considered that “an adverse situation occurring would (probably) have a limited impact on the market.”