Portugal: Financial System Stability Assessment

This paper highlights Portugal’s Financial System Stability Assessment report. The Portuguese financial sector has been resilient to shocks over the past decade, reflecting substantial deleveraging after the 2012 European debt crisis. Banks dominate the financial landscape, with strong capital and liquidity buffers and high profitability relative to peers. Financial stability risks in Portugal are currently moderate. Banks demonstrate resilience under severe adverse stress tests, including shocks similar in magnitude to those during the European debt crisis. Rapidly rising real estate prices warrant close monitoring, as mortgage lending is now accelerating. Several macroprudential measures help limit systemic risks. Authorities should ensure adequate resources to address emerging challenges. Housing market risks require close monitoring, and Banco de Portugal should continue to develop tools to monitor banking sector risks. The macroprudential framework and tools should be further strengthened to enhance their effectiveness and prevent risk accumulation. System-wide institutional and cooperation arrangements for cyber risk oversight and crisis management should be formalized. The deposit insurance fund should be enhanced by gradually strengthening payout capacity and establishing a public backstop.