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Introduction

The Portuguese financial system is fully integrated with the international and European financial markets. The Portuguese banking regulator, the Bank of Portugal (BOP), joined the European System of Central Banks (ESCB) on 1 January 1999. As a result, the definition and implementation of the country's monetary and exchange rate policy, the management of official currency reserves, the efficiency of the payment systems and the issuing of banknotes are now controlled by the ESCB. Likewise, the Portuguese regulatory system governing credit institutions and financial companies is identical in broad terms to the legal framework in force in other EU Member States.

Since the conclusion of the Financial and Economic Assistance Programme in 2014, the Portuguese economy has been slowly improving and has been growing in the past few years, even though this growth has been slowing and there are still some uncertainties as to the financing conditions Portugal may face in the foreseeable future.

Regarding the political context, the left-wing government has maintained the necessary majorities in Parliament and, as at the end of 2019, had concluded the fourth and last year of its mandate following the 2015 elections. The 2019 elections saw a reinforcement of the representation of the Socialist Party in Parliament, which was also repeated in the recent elections of January 2022. With this result, the left-wing bias of the Portuguese Parliament was strengthened, and the course of the policies enacted during the previous mandate is expected to remain constant in the forthcoming years. In respect of state-owned enterprises, following a few years of intense privatisation of state-owned companies, 2016 was the first year of the century without privatisations in Portugal, and no new major transactions were carried out by the government in 2021.

In respect of the banking sector itself, following the period after the conclusion of the Financial and Economic Assistance Programme, in which the BOP determined the application of resolution measures to Banco Espírito Santo (BES) and Banco Internacional do Funchal (Banif), the past few years have been marked by the sale of some of the largest banks in Portugal and the recapitalisation of other major banks.

Notwithstanding the foregoing, the list of the top five largest banks in Portugal (by gross assets and in no particular order) has not seen any changes, and still comprises Caixa Geral de Depósitos (a state-owned bank), Banco Comercial Português, Banco BPI, Banco Santander Totta and Novo Banco (the bridge bank created in the context of the resolution measure applied to BES).

As for its key financial indicators, by the end of the first semester of 2021, they showed that the banking industry had a total asset value of €435.7 billion,2 and that the value of credit granted to customers amounted to a total of €243.99 billion3 and the value of deposits amounted to a total of €295.4 billion.4

The regulatory regime applicable to banks

The regulatory regime applicable to credit institutions and financial companies is set out in the General Framework for Credit Institutions and Financial Companies, enacted by Decree-Law No. 298/92 of 31 December 1992, as amended (RGICSF). In turn, payment institutions are subject to the Legal Framework of Payment Institutions and Payment Services, enacted by Decree-Law No. 91/2018 of 7 November 2018, which implemented the second Payment Services Directive5 into Portuguese law.

As credit institutions must take the legal form of companies limited by shares and have their registered offices located within the Portuguese territory, they are also subject to the general principles and rules of company law further to the banking regulations.

Banks are a central part of the Portuguese financial system not only because of the sheer volume of their business but also because of their involvement in every segment of the Portuguese economy. They may provide a full range of banking services for corporate and private customers, including lending, taking deposits and other repayable funds from the public, granting credit on their own account to third parties in general, and collection and payment services within or outside Portugal (either through foreign branches or on a freedom to provide services basis). Foreign credit institutions may also pursue their banking activity in the territory under the right of establishment rules or on a freedom to provide services basis (this latter structure is reserved for credit institutions of other EU Member States only) provided that the relevant passporting requirements are duly fulfilled.

The BOP is the Portuguese central bank, being responsible for the prudential and market conduct supervision of credit institutions, financial companies and payment institutions, to ensure the stability, efficiency and soundness of the financial system, as well as compliance with the rules of conduct and transparency requirements towards bank customers, thereby ensuring the safety of deposits and depositors, and the protection of consumer interests.

In addition to the RGICSF, credit institutions, financial companies and payment institutions are also required to comply with the notices, instructions and circular letters issued by the BOP.

By the same token, whenever credit institutions or financial companies also pursue financial intermediation activities, they will be subject to the supervision of, and regulations issued by, the Portuguese Securities Market Commission (CMVM). The same applies to the insurance intermediation activities that may be pursued by banks, which are also subject to the supervisory powers of the Portuguese Insurance and Pension Funds Supervisory Authority, and are required to comply with the regulations or circular letters issued by the latter.

In view of the foregoing, credit institutions may ultimately be subject to the supervisory powers of the three above-mentioned Portuguese regulatory authorities, in addition to the European Central Bank (ECB), as a result of the introduction of the Single Supervisory Mechanism (SSM) in 2014.