Instruction No. 10/2024

Instruction No. 10/2024 BO No. 5/2024 3rd Supplement • 2024/06/06 .................................................................................................................................................................................................. Topics Supervision :: Prudential Standards Mod. 99999940/T – 01/14 Index Text of the Instruction Text of the Instruction Subject: Revocation of Banco de Portugal Instruction No. 34/2018

Banco de Portugal Instruction No. 34/2018 (“Instruction No. 34/2018”) establishes the standardized reporting (i) of exposure to interest rate risk resulting from activities not included in the trading book (Interest rate risk of the banking book - IRRBB) and (ii) of the results of outlier tests, i.e., the impact on the economic value of equity and on the expected financial margin over 1 year of a set of scenarios of changes in the yield curve.

With the entry into force of Directive (EU) 2019/878 of the European Parliament and of the Council, of May 20, 2019, on June 27, 2019 (CRD V) — which amended Directive 2013/36/EU of the European Parliament and of the Council, of June 26, 2013 (CRD) — the IRRBB framework underwent a set of relevant changes, which were transposed into national law by Law No. 23-A/2022, of December 9, which amended in conformity the General Regime of Credit Institutions and Financial Companies (RGICSF), approved by Decree-Law No. 298/92 of December 31.

Among other changes, credit institutions were allowed to use internal systems, the standard methodology, or the simplified standard methodology to identify, assess, manage, and reduce IRRBB. Additionally, the supervisory outlier test was amended, providing for the possibility of exercising supervisory powers, at least when: a) as a result of applying one of the 6 supervisory scenarios to the yield curve, the impact on the economic value of equity is negative and exceeds 15% of Tier 1 capital; b) as a result of applying one of the 2 supervisory scenarios to the yield curve, net interest income suffers a significant reduction.

In this regard, the European Banking Authority (EBA) developed in 2022 Regulatory Technical Standards (RTS) regarding the standard and simplified standard methodologies for IRRBB (EBA/RTS/2022/09) and to specify the assumptions to be used in the calculation of the supervisor's test (EBA/RTS/2022/10). These RTS were approved on December 1, 2023, by the European Commission and published on April 24, 2024, in the Official Journal of the European Union, entering into force on May 14, 2024, through Delegated Regulation (EU) No. 2024/857 and Delegated Regulation (EU) No. 2024/856, respectively.

Instruction No. 10/2024 BO No. 5/2024 3rd Supplement • 2024/06/06 Topics Supervision :: Prudential Standards .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

Additionally, the EBA developed a harmonized report at the European level (EBA/ITS/2023/03), embodied in Implementing Regulation (EU) No. 2024/855, approved by the European Commission on March 15, 2024, and also published on April 24, 2024, in the Official Journal of the European Union, which will be applicable from September 1, 2024, and whose first reference date for reporting will be September 30, 2024.

Considering the entry into force of the aforementioned reporting regime, the current regime provided for in Instruction No. 34/2018 remains in force until August 31, 2024, and institutions must carry out the report on June 30, 2024, still under the current rules. On August 31, all effects of Instruction No. 34/2018 will cease, thus ensuring an adequate transition from national to European reporting and avoiding duplication of reports.

This change was subject to public consultation, in accordance with legal provisions.

In these terms, Banco de Portugal, using the competence conferred upon it by the combined provisions of Articles 116(1)(f), 120(1) and (2), and 121-A(1) and (2), all of the RGICSF, approves the following Instruction:

Article 1. Revocatory Norm

1 - This Instruction revokes Banco de Portugal Instruction No. 34/2018, published in the Official Bulletin of Banco de Portugal No. 12/2018, 2nd Supplement, of December 26, 2018, which defines the standardized reporting for interest rate risk in the banking book (IRRBB).

2 - The revocation of Banco de Portugal Instruction No. 34/2018 shall produce its effects on August 31, 2024.

Article 2. Entry into Force

This Instruction enters into force on the day following its publication.