Portugal’s banks have €6.2Bn cash cushion set aside for a rainy day

The Bank of Portugal has revealed that Portugal’s banks have a safety net with some €6.2Bn to cover unexpected losses.

Relating to 2024, these reserves known in ‘bankalese’ as Combined Buffer Requirement (CBR), meaning the sum of a bank’s capital conservation buffer, countercyclical capital buffer, and systemic buffers. The CBR allows banks to absorb losses while still providing essential services to the economy, represented 3.4% of calculated risk-weighted exposure.

This “solid capacity to absorb unexpected losses” was highlighted in the Bank of Portugal’s report ‘Monitoring of Macro-prudential Measures in Portugal’ published on Monday.

The main objective of macro-prudential capital measures is to strengthen the financial system’s ability to absorb unexpected shocks, avoiding negative impacts on the economy. This set of reserves includes four main components, which must be met through the main tier 1 capital (CET1):

1) Capital conservation buffer (CCoB): Equivalent to 2.5% of risk-weighted positions, this reserve ensures that banks maintain a stable flow of financing to the economy in adverse scenarios.

2) Reserve for other systemically important institutions (O-SII): Applicable to banks considered systemically relevant, with values up to 3% of the total amount of risk-weighted positions.

3) Sector Systemic Risk Reserve (sSyRB): Introduced in October 2024, with a percentage of 4%, this reserve aims to protect banks against shocks in the residential real estate market.

4) Countercyclical reserve (CCyB): Currently set at 0%, it will be activated in January 2026 with an initial percentage of 0.75%, reinforcing the banks’ capacity to face unexpected cyclical shocks.

According to data from the regulator, Portugal’s banks have robust levels when it comes to meeting regulator requirements with systemically important financial institutions exceeding requirements by 6%.