The Bank of Portugal today disclosed the first global results of the Special Inspections Program (SIP) conducted as part of the measures and coordinated actions agreed by the Portuguese authorities for the financial system, within the scope of the Economic and Financial Assistance Program established with the IMF/EU/ECB last May.

This Inspections Program covers the eight major Portuguese banking groups, including Banco Comercial Português (BCP Group), and aims to validate, with reference to 30 June 2011, the credit risk data used in assessing their financial strength through an independent assessment of the credit portfolios and the adequacy of risk management policies and procedures, as well as the confirmation of the calculation of capital requirements for credit risk.

The aggregate impact of these results in assessing the solvency of the Group to 30 June 2011, taking into account the existing prudential buffers on that date, would result in a reduction of the Tier 1 ratio from 9.3% to 8.5%, remaining above the 8% required minimum at that date.

The exercise focused on loans amounting to 55.4 billion euros from the BCP Group's portfolio, corresponding to 72% of the total loan portfolio of the Group.

The inspection concluded that there is a need to increase the impairment recorded in the consolidated accounts of the group by 381 million euros. This represents 0.7% of the loan portfolio analyzed and 16.0% of the impairment recorded on this portfolio.

In the context of SIP, it was also ascertained the need to make timely corrections to the value of risk-weighted assets, which would imply an increase of 1.3% in the total amount calculated for that date. It should be noted, however, that legislative amendments applicable after the reference date of the SIP, in particular the entry into force in late 2011, with amendments to the EU legislation (CRD III), will result in a reduction of risk weighted assets, equivalent to 0.6% based on data from 30 June 2011. These effects subsequent to June 30, 2011 were not taken into account in estimating the impact of SIP in Tier 1.

The needs to strengthen capital requirements resulting from the recommendations of SIP shall, in accordance with guidelines of the Bank of Portugal, be met by June 2012 and will therefore be addressed in the strategic capitalization plan that the BCP Group will present in the beginning of 2012 and in which it will detail the measures to adopt to meet the global needs for strengthening capital, including those arising from the EBA exercise.

With regard to opportunities for improvements identified in the policies and procedures followed in the credit risk management, BCP will establish and present to the Bank of Portugal a plan to resolve the short-term situations that still exist.

In this context, BCP also reports that during the second half of 2011 the Bank maintained a high rate of provisioning for impairment of its loan portfolio, accounting for impairments made in this period, until October, for the activity in Portugal, of about 174 million euros. Additionally, as regards the adjustment of the value of risk weighted assets, about 336 million euros from the value identified was already incorporated in the capital ratios reported to the Bank of Portugal, with reference to the end of October.

Banco Comercial Português