Instruction No. 11/2022

Instruction No. 11/2022 BO No. 6/2022 2nd Supplement • 2022/06/29 .................................................................................................................................................................................................. 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 May 2, 2022, the Governing Council of the ECB approved Guideline (EU) 2022/989 of the European Central Bank, which amends Guideline ECB/2014/31 on additional temporary measures regarding Eurosystem refinancing operations and the eligibility of collateral assets (ECB/2022/19).

In accordance with the review carried out by the ECB Governing Council on the temporary collateral flexibility measures adopted since 2020 in response to the exceptional economic and financial circumstances associated with the spread of the coronavirus disease (COVID-19), it was decided to initiate their phased discontinuation starting July 8, 2022. The measures to be discontinued include the temporary reduction of asset valuation haircuts and the maintenance of eligibility of assets, and of the issuers and guarantors of these assets, which, as of April 7, 2020, met the Eurosystem minimum credit quality requirements but subsequently suffered a downgrade in their credit rating.

It was also deemed necessary to clarify the treatment, for eligibility purposes, of reference interest rates for tradable assets.

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 January 31, 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. The table in Article 4 is amended, to read as follows:

Instruction No. 11/2022 BO No. 6/2022 2nd Supplement • 2022/06/29 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

2. Article 8 is amended as follows:

a) Paragraph 1 is amended to read as follows:

1. The minimum valuation margins (haircuts) applied to each of the portfolios are calculated as follows:

= 0.9 ∙ (∑ =1∑ =1 )

Where: n – number of loans in the portfolio. VNi – outstanding nominal amount/value of loan i. Stressed PD – Conditional/stressed PD as a function of the probability of default (Probability of Default – PD), for a 1-year horizon and the remaining maturity of the loan, 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 remaining maturity of the loan, according to Table 4 presented below.

b) Paragraph 2, item d, is amended to read as follows:

d) A minimum value of 18 percent shall be considered for the valuation margin applied to portfolios, i.e., if the result of the calculation is, for example, 14 percent, the value of 18 percent shall be applied.

3. In Article 9, item a) iv) is revoked.

4. Article 11 is amended as follows:

Level 1&2 (PD: 0.1%) Level 3 (PD: 0.4%) Level 4 (PD: 1.0%) Level 5 (PD: 1.5%) Remaining Maturity Fixed Rate Variable Rate Fixed Rate Variable Rate Fixed and Variable Rate Fixed and Variable Rate Up to 1 year 7.2 7.2 13.5 13.5 31.5 45 1 to 3 years 10.8 7.2 25.2 13.5 43.2 54 3 to 5 years 14.4 7.2 32.9 13.5 46.8 57.6 5 to 7 years 16.7 10.8 38.7 25.2 49.5 59.4 7 to 10 years 21.6 14.4 40.5 32.9 51.3 61.2

10 years 31.5 16.7 43.2 38.7 54 63

Instruction No. 11/2022 BO No. 6/2022 2nd Supplement • 2022/06/29 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

a) Paragraph 1, item d, is amended to read as follows:

d) The debt instrument integrated into a Securities Depository Center (SDC) is not admitted to trading on a market accepted by the Eurosystem, as provided for in Article 68 of Instruction No. 3/2015 (non-listed debt instrument).

b) Paragraph 4 is revoked.

c) Paragraph 5 is amended to read as follows:

5. In addition to the eligibility requirements provided for in this Instruction, (i) additional non-listed short-term debt instruments must also comply with the operational requirements defined in section 7.4 of the External User Manual of the COLMS – Collateral Assets and Operations Management System.

6. Article 14, item a), i, is amended, to read as follows:

i. Levels of valuation margins applied to eligible securitized debt instruments under the provisions of this number

Weighted Average Maturity (*) Valuation Margin [0,1) 5.4 [1,3) 8.1 [3,5) 11.7 [5,7) 13.5 [7,10) 16.2 [10,∞) 27

• i.e., [0,1) weighted average maturity less than one year, [1,3) weighted average maturity equal to or greater than one year and less than three years, etc.

6. In Article 18, Paragraph 2 is amended to read as follows:

7. The tradable debt instruments described in Article 17, with coupons associated only with an interest rate provided by a central bank or by an administrator under Article 36 of Regulation (EU) 2016/1011 of the European Parliament and of the Council (*), or

Instruction No. 11/2022 BO No. 6/2022 2nd Supplement • 2022/06/29 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

with a money market rate registered as a reference index of a third country in the register mentioned in Article 36 of the aforementioned regulation in its denomination currency, or with an inflation index that does not contain discrete ranges, range accrual, ratchet effects, or other similar complex structures for the respective country, are also eligible collateral assets for the purposes of Eurosystem monetary policy operations.

(*) Regulation (EU) 2016/1011 of the European Parliament and of the Council of June 8, 2016, on indices used as reference values in the context of financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ L 171 of 29.6.2016, p. 1).

7. Article 21 is amended, to read as follows:

The securities referred to in the previous article are subject to the following valuation margins:

Credit Quality Remaining Maturity (years) (*) Category I Fixed Coupon Zero Coupon Variable Coupon Level 4 [0,1) 7.2 [1,3) 10.8 11.7 10.8 [3,5) 12.6 13.5 12.6 [5,7) 14.0 15.3 14.0 [7,10) 14.9 16.2 14.9 [10,∞) 16.2 18.9 16.2 Level 5 [0,1) 9 [1,3) 12.6 13.5 12.6 [3,5) 14.9 15.8 14.9 [5,7) 16.2 17.6 16.2

Instruction No. 11/2022 BO No. 6/2022 2nd Supplement • 2022/06/29 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

[7,10) 17.1 18.5 17.1 [10,∞) 18.5 21.2 18.5

(*) I.e., [0,1) remaining maturity less than one year, [1,3) remaining maturity equal to or greater than one year and less than three years, etc.

8. Annex IV is amended as follows:

a) The title is amended to read as follows:

Annex IV – Procedures for the use of additional credit rights as collateral assets in Eurosystem credit operations

b) Paragraph 1, B, c, is amended to read as follows:

c) The Counterparty must report each portfolio to a data repository designated by the Eurosystem, as defined in paragraph 2 of this annex.

At the time of the first report to the data repository, the final approval of each portfolio is carried out after validation of the information reported to the data repository designated by the Eurosystem, as defined in point D, item i) of this annex.

c) Paragraph 1, D, h), i) and k) are amended to read as follows:

h) This process (validation by the Bank and resubmission of the file by the Counterparty) is repeated until the new version of the portfolio presents no issues.

i) At the end of each month, the final approval of each portfolio is carried out after validation of the information reported to the data repository designated by the Eurosystem, as defined in point E, item a) and paragraph 2 of this annex.

k) Following the explicit approval by the Bank (item i) above), the valuation margins (haircuts) will be updated by the Bank, as defined in Article 8 of this Instruction.

d) Paragraph 1, D, l) is revoked.

e) Paragraph 1, E, a) is revoked.

f) Paragraph 2, a) and b) are amended to read as follows:

Instruction No. 11/2022 BO No. 6/2022 2nd Supplement • 2022/06/29 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

a) With reference to the end of each month, Counterparties with mobilized portfolios must electronically submit to the data repositories designated by the Eurosystem information regarding all loans included in the portfolios (loan-level data).

b) These reports must be made, preferably, within 3 business days after notification by the Bank (see paragraph 1, letter D, item i)), provided that this date does not exceed the end of the month following the reference date of the information.

g) Title III is revoked.

9. This Instruction enters into force on July 8, 2022. Part VII remains in force until July 7, 2022. The amendments introduced in Annex IV, 1., B, D, E and 2.a) enter into force on September 30, 2022.

10. This Instruction is republished in its entirety, and is available at https://www.bportugal.pt/instrucao/72012