Portugal: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis

The Financial Sector Assessment Program (FSAP) for Portugal conducted a comprehensive systemic risk analysis and assessment of the resilience of the banking sector. This included a full-fledged top-down solvency stress test to evaluate banks’ capital adequacy under two severe adverse macrofinancial scenarios. Alongside this, targeted sensitivity analyses were conducted to examine risks not fully captured in the solvency tests, including debt revaluations at amortized cost, potential losses from common large exposures, and quasi-reverse stress tests. Cash flow-based liquidity stress tests assessed banks’ resilience to general risk aversion, sovereign market distress, and idiosyncratic shocks to their funding base. A targeted assessment analyzed vulnerabilities across the household, corporate, and real estate sectors, and interconnectedness analysis examined the structural evolution of cross-sectoral linkages in the financial sector.