Central bank waives counter-cycle reserves

  • Lusa
  • 1 April 2020

The Portuguese central bank has waived the need for banks to build up counter-cyclical reserves in the second quarter of 2020.

The Bank of Portugal has again waived the need for banks to build up counter-cyclical reserves in the second quarter of this year, according to a statement issued on Tuesday by the banking supervisor.

“By decision of the Board of Directors adopted on March 24th 2020, the Bank of Portugal decided that the percentage of counter-cyclical own funds reserves to be in force in the 2nd quarter of 2020 will remain at 0% of the total amount of exposures”, the central bank announced.

Since 2016, the Bank of Portugal has exempted Portuguese banks from creating this additional capital ‘cushion’.

The decision on this reserve is taken every quarter. For the decision regarding the period between April and June, the Bank of Portugal notified the European Central Bank (ECB), which did not object.

The counter-cyclical reserve applies to credit risk positions, the aim of this macro-prudential instrument being to encourage banks to accumulate capital in times of credit growth so that it can be released in times of crisis and credit crunch, in order to smooth out fluctuations in the credit cycle.

Also today the Bank of Spain has left this countercyclical capital ‘cushion’ at 0% for the country’s banks, having given grounds for the decision in the information disclosed.

According to the Bank of Spain’s information note, reported EFE, the current global covid-19 pandemic and “the necessary containment measures applied in the country” lead to a situation where “it is advisable not to activate this instrument for an extended period of time, at least until the main economic and financial effects of the crisis have dissipated.