Instruction No. 11/2020

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 .................................................................................................................................................................................................. Topics Markets :: Money Markets Mod. 99999940/T – 01/14 Index Text of the Instruction Text of the Instruction Subject: Implementation of monetary policy – Additional temporary measures On 7 April 2020, the Governing Council of the ECB approved ECB Guideline (EU) 2020/515, which amends ECB Guideline ECB/2014/31, on additional temporary measures concerning Eurosystem refinancing operations and the eligibility of collateral assets (ECB/2020/21), as well as ECB Guideline ECB/2020/NP13, which introduces amendments to ECB Guideline ECB/2013/NP15, establishing the minimum eligibility and standard risk control for additional eligible credit rights under the temporary measures. Thus, in exercise of the competence attributed to it by Articles 12, 15, 16 and 24 of its Organic Law, approved by Law No. 5/98 of 31 January, in its current version, the Bank of Portugal determines the following: Instruction No. 7/2012 (BO No. 3, of 15-03-2012) is amended as follows:

1. Number II.1.3 is amended, being replaced by the following:
2. Number II.2.1 is amended, being replaced by the following: II.2.1 Credit Rights The following credit rights are admitted: Level 1&2 (PD: 0.1%) Level 3 (PD: 0.4%) Level 4 (PD: 1.0%) Level 5 (PD: 1.5%) Residual Term Fixed Coupon Variable Coupon Fixed Coupon Variable Coupon Fixed and Variable Coupon Fixed and Variable Coupon Up to 1 year 6.4 6.4 12 12 28 40 1 to 3 years 9.6 6.4 22.4 12 38.4 48 3 to 5 years 12.8 6.4 29.2 12 41.6 51.2 5 to 7 years 14.8 9.6 34.4 22.4 44 52.8 7 to 10 years 19.2 12.8 36 29.2 45.6 54.4

10 years 28 14.8 38.4 34.4 48 56

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

• Loans intended for the acquisition, construction and execution of works in permanent, secondary or rental housing, as well as for the acquisition of land for the construction of own housing, secured by mortgage and granted to families (“Housing Credit”), with a minimum value, at the date of mobilization of 10,000 euros.
• Consumer loans to families (“Personal Credit”, “Auto Credit”, “Credit Card” and “Financial Leasing” and “Related Credit”), for which no minimum value is established. Related Credit is a “credit contract whose mortgage guarantee applies, wholly or partially, to a property that simultaneously guarantees a housing credit contract concluded with the same institution, as defined in paragraph 2 of Article 1 of Decree-Law No. 51/2007 of 7 March. Only loans classified as related credits may be submitted, which were granted until 1 January 2018, and whose mortgage guarantee is sufficient to simultaneously guarantee the housing credit and the related credit.
• Loans granted to companies that do not have the nature of financial companies (“Renewable Credit”, “Non-renewable Credit”, “Factoring without recourse”, “Real Estate Financial Leasing”, “Financial Leasing”, “Business Activity Financing” and “Auto Credit”) according to the classification contained in the Technical and Operational Support Guide, complementary to BdP Instruction No. 17/2018), with a minimum value, at the date of mobilization of 10,000 euros.

3. Number II.2.3.2 is amended, being replaced by the following: The valuation margins (haircuts) applied to credit rights portfolios are dynamic and calculated as follows: = 0.8 × (∑ =1∑ =1 ) Where: n – number of loans in the portfolio. VNi – amount/remaining nominal value of loan i. Stressed PD – Conditional/stressed PD as a function of the probability of default (Probability of Default – PD), for the 1-year horizon and the residual term of the EB, according to tables 1 to 3 presented below. Adjusted LGD – Valuation-risk adjusted LGD as a function of the loss given default (Loss Given Default – LGD) and the residual term of the EB, according to table 4 presented below. The following shall also be taken into consideration: a) The PD and LGD considered in the calculation are those reported to the BdP by the IP.

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 b) A second add-on of 3 percentage points shall be applied if the HHI of the portfolio is between 0.5 percent and 1 percent (see point Error! Reference source not found.). c) The result of the calculation shall always be rounded down to the nearest integer, i.e., for example, 42.6 percent shall be rounded to 42 percent. d) A minimum value for the valuation margin to be applied to portfolios shall be considered 16 percent, i.e., if the result of the calculation is, for example, 12 percent, the value of 16 percent shall be applied. e) The valuation margin is dynamic and recalculated monthly. Table 1: Conditional/stressed PD for HIPO portfolios (in percentage) Residual Term (in years) PD PD ≤ 0.1% 0.1% < PD ≤ 0.4% 0.4% < PD ≤ 1.0% 1.0% < PD ≤ 1.5% 1.5% < PD ≤ 3.0% 3.0% < PD ≤ 5.0% PD > 5.0% 0 – 1 3 8 15 20 31 41 100 1 – 3 5 13 24 32 42 68 100 3 – 5 8 21 38 48 59 82 100 5 – 7 11 29 49 59 70 89 100 7 – 10 17 40 62 72 81 94 100 10 – 15 27 56 75 83 90 97 100 15 – 25 46 75 89 93 96 99 100

25 55 81 92 95 97 99 100 Table 2: Conditional/stressed PD for CONS portfolios (in percentage) Residual Term (in years) PD PD ≤ 0.1% 0.1% < PD ≤ 0.4% 0.4% < PD ≤ 1.0% 1.0% < PD ≤ 1.5% 1.5% < PD ≤ 3.0% 3.0% < PD ≤ 5.0% PD > 5.0% 0 - 1 3 8 13 15 18 21 100 1 - 3 5 12 20 25 26 42 100 3 - 5 8 20 32 38 40 58 100 5 - 7 12 28 42 49 51 69 100 7 - 10 18 39 55 61 63 78 100 10 - 15 28 54 69 75 76 87 100 15 - 25 47 74 84 88 88 93 100 25 56 80 88 91 91 95 100

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 Table 3: Conditional/stressed PD for EMPR portfolios (in percentage) Residual Term (in years) PD PD ≤ 0.1% 0.1% < PD ≤ 0.4% 0.4% < PD ≤ 1.0% 1.0% < PD ≤ 1.5% 1.5% < PD ≤ 3.0% 3.0% < PD ≤ 5.0% PD > 5.0% 0 - 1 5 13 20 24 30 37 100 1 - 3 8 19 31 37 42 63 100 3 - 5 13 31 46 54 58 78 100 5 - 7 19 42 58 65 69 86 100 7 - 10 28 55 71 77 80 92 100 10 - 15 42 71 83 88 89 96 100 15 - 25 64 87 94 95 96 99 100

25 73 91 96 97 97 99 100 Table 4: Valuation-risk adjusted LGD (in percentage) Residual Term (in years) Unadjusted LGD LGD ≤ 10% 10% < LGD ≤ 20% 20% < LGD ≤ 30% 30% < LGD ≤ 40% 40% < LGD ≤ 50% 50% < LGD ≤ 60% 60% < LGD ≤ 70% 70% < LGD ≤ 80% 80% < LGD ≤ 90% 90% < LGD ≤ 100% 0 - 1 11 21 31 41 50 60 70 80 90 100 1 - 3 13 22 32 42 51 61 71 81 90 100 3 - 5 14 24 33 43 52 62 71 81 90 100 5 - 7 16 25 35 44 53 63 72 81 91 100 7 - 10 19 28 37 46 55 64 73 82 91 100 10 - 15 22 31 40 48 57 66 74 83 91 100 15 - 25 30 38 45 53 61 69 77 84 92 100 25 33 41 48 55 63 70 78 85 93 100

4. Number IV.2.1 (i) is amended, being replaced by the following: (i) Levels of valuation margins applied to eligible debt instruments securitized under the provisions of IV.2.1 of this instruction. Weighted Average Life* Valuation Margin 0-1 4.8 1-3 7.2 3-5 10.4 5-7 12.0 7-10 14.4

10 24.0

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 ** i.e. [0-1) residual term/weighted average duration less than one year, [1-3) residual term/weighted average duration equal to or greater than one year and less than three years, etc. 5. A new number VII is added, which replaces the previous one, with the remaining numbers being renumbered accordingly: VII Acceptance of tradable debt securities issued by the central administration of the Hellenic Republic VII.1 The Bank of Portugal accepts as collateral assets in Eurosystem credit operations tradable debt securities issued by the central administration of the Hellenic Republic that do not meet the Eurosystem credit quality requirements for tradable assets established in Articles 59 and 71 of Part IV, Title I and II, Chapter 1, of BdP Instruction No. 3/2015, provided that these instruments meet all other eligibility criteria applicable to tradable assets established in the aforementioned instruction. VII.2 The securities referred to in the previous paragraph are subject to the following valuation margins: Credit Quality Residual Term (years)() Category I Fixed Coupon Zero Coupon Variable Coupon Level 4 [0-1) 6.4 [1-3) 9.6 10.4 9.6 [3-5) 11.2 12 11.2 [5-7) 12.4 13.6 12.4 [7-10) 13.2 14.4 13.2 [10,∞) 14.4 16.8 14.4 Level 5 [0-1) 8 [1-3) 11.2 12 11.2 [3-5) 13.2 14 13.2 [5-7) 14.4 15.6 14.4 [7-10) 15.2 16.4 15.2 [10,∞) 16.4 18.8 16.4 () i.e., [0-1) residual term less than one year, [1-3) residual term equal to or greater than one year and less than three years, etc. 6. Annex III is amended as follows: 6.1 Number II, 1., D., h), i), j) shall have the following wording: h) This process (validation by BdP and resending of the file by the IP) is repeated until the new version of the portfolio does not present problems and the BdP communicates to the IP the final approval of each portfolio.

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 i) At the end of each quarter, the final approval of each portfolio is carried out after the validation of the information reported to the data repository designated by the Eurosystem, according to the defined in point E, letter a) and in point 2 of this annex. j) Following the final approval, the aggregated value of the portfolios (communicated daily via the txt file, according to the format referred to in the Transfer Manual) may be updated to include new credit rights proposed for mobilization that have been approved by the BdP. k) Following the explicit approval by the BdP (letters h) and i) above), the valuation margins (haircuts) will be updated by the BdP, according to the defined in point II.2.3.2 of this Instruction. The previous letter i) was eliminated and the remaining ones renumbered accordingly. 6.2 Number II, 1., E., is amended, taking the following wording: a) At the end of each quarter, the IP shall report to the data repository designated by the Eurosystem the version of the portfolio relating to the last month of the quarter, according to the defined in point 2 of this annex. b) According to Instruction No. 3/2015, quarterly, up to 30 days after each end of calendar quarter, a quarterly certificate must be sent to the BdP, according to the defined in Articles 101 and 101.A of Instruction No. 3/2015. c) The certificate referred to in the previous point may be digitally signed, according to the defined in the Transfer Manual. d) If the IP also has individual EBs mobilized, the certificate referred to in point b) must cover both types of credit rights mobilized as collateral assets. 6.3 Numbers 2., a), b) and d) are amended, taking the following wording: a) With reference to the last day of each quarter, IPs with mobilized portfolios must electronically submit to the data repository designated by the Eurosystem information relating to all EBs included in the portfolios (loan-level data). b) This report must be made, preferably, within 3 business days after notification by the BdP (see point 1, letter D, letter i) or point 1, letter B, letter b), for initial mobilization), provided that this date does not exceed the end of the month following the reference date of the information. d) The information to be reported to the data repository designated by the Eurosystem must correspond to the pre-approved version by the BdP (see point 1, letter D, letter i) or point 1, letter B, letter b)).

Instruction No. 11/2020 BO No. 4/2020 2nd Supplement • 2020/04/20 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 7. Suspension of Circular Letter No. 3/2015/DMR The rates applied to bank loans, specified in No. 1 of Circular Letter No. 3/2015/DMR, are suspended during the transitional period in which the exceptional measures for the expansion of collateral assets are in force. 8. This Instruction enters into force on 20 April 2020. 9. This Instruction is republished in its entirety, and is available at https://www.bportugal.pt/instrucao/72012