Instruction No. 13/2023

Instruction No. 13/2023
BO No. 6/2023 Supplement • 2023/06/21
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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 December 16, 2022, the Governing Council of the ECB approved ECB Guideline (EU) 2023/833, amending ECB Guideline ECB/2014/31 on additional temporary measures regarding Eurosystem refinancing operations and the eligibility of collateral assets (ECB/2022/50).

This decision aims to introduce changes to the risk control framework, specifically: eliminating the temporary reduction of valuation margins under measures taken in response to COVID-19; dividing the category of instruments with longer residual maturity into three new categories; replacing the current 5% theoretical revaluation reduction applicable to tradable assets with a sliding scale reduction based on maturity; and aligning the classification of valuation margins for tradable assets with fixed and floating coupons.

Accordingly, exercising the powers conferred upon 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. In Article 4, the Table is amended, being replaced by the following:

Credit Quality	Level 1 and 2	Level 3	Level 4	Level 5
Residual Maturity (years)(*)	Fixed Rate	Variable Rate	Fixed Rate	Variable Rate	Fixed and Variable Rate	Fixed and Variable Rate
Less than 1 year	8	8	16	16	46	54
1 to 3 years	11.5	8	25	16	57	62
3 to 5 years	15	8	35	16	59	64
5 to 7 years	20	11.5	42	25	61	66
7 to 10 years	26	15	46	35	63	68
10 to 15 years	33	20	48	42	64	69
15 to 30 years	38	26	50	46	65	70
More than 30 years	40	33	52	48	65	70

i.e. [0-1) residual maturity less than one year, [1-3) residual maturity equal to or greater than one year and less than 3 years, etc.

2. In Article 5, paragraph c) is amended, taking the following wording:

c) Loans granted to companies that do not have the nature of financial societies (“Renewable Credit”, “Non-renewable Credit”, “Real Estate Financial Leasing”, “Movable Financial Leasing”, “Financing of Business Activity” and “Car Credit” according to the classification contained in the Technical and Operational Support Guide, complementary to Bank Instruction No. 17/2018), for which no minimum value is established.

3. In Article 6, the following are amended:

a) Paragraph 1, which takes the following wording:

1. Credit rights portfolios may be constituted by credit rights of the types referred to in Article 5.

b) Paragraph 3 is renumbered as paragraph 4, and paragraph 3 takes the following wording:

3. Credit rights portfolios granted to companies may not include syndicated loans.

4. In Article 8, paragraph 1 and paragraph 2, item d) are amended, taking the following wording:

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

Haircut = (∑ (VNi * Stressed PD * Adjusted LGD) / ∑ VNi)

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 (PD), for a 1-year horizon and the residual maturity 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 (LGD) and the residual maturity of the EB, according to Table 4 presented below.

2. d) A minimum value of 20 percent shall be considered for the valuation margin to be applied to the portfolios, i.e., if the result of the calculation is, for example, 14 percent, the value of 20 percent shall be applied.

5. Part II is revoked, and the remaining Parts and Articles are renumbered accordingly.

6. In Article 12, paragraphs 2 and 3 are renumbered as 1.1 and 1.2.

7. In Article 14, item a), item i, the Table is amended, being replaced by the following:

Valuation Margin Levels (in %) applicable to debt instruments securitized eligible under item a) of this Article
Credit Quality	Weighted Average Maturity ()	Valuation Margin
Level 3	[0,1)	7.0
	[1,3)	10.0
	[3,5)	13.0
	[5,7)	15.0
	[7,10)	18.0
	[10,15)	27.0
	[15,30)	31.0
	[30,∞)	33.0

• 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.

8. In Article 14, item a), item iii is amended, taking the following wording:

Securitized debt instruments that are theoretically valued according to the rules contained in Article 134 of Guideline (EU) 2015/510 (ECB/2014/60) are subject to an additional valuation margin in the form of an additional revaluation reduction. The reduction of the additional revaluation margin depends on the weighted average maturity of the asset, according to the levels established in Table 4 of the annex to Guideline (EU) 2016/65 (ECB/2015/35).

9. In Article 21, the Table is amended, being replaced by the following:

Valuation Margin Levels (in %) applicable to tradable assets eligible under Article 20 of this Instruction
Credit Quality	Residual Maturity (years)	Category I Fixed and Variable Coupon	Zero Coupon
Level 4	[0,1)	8.0	8.0
	[1,3)	12.0	13.0
	[3,5)	14.0	15.0
	[5,7)	15.5	17.0
	[7,10)	16.5	18.0
	[10,15)	17.0	20.0
	[15,30)	19.0	22.0
	[30,∞)	20.0	23.0
Level 5	[0,1)	10.0	10.0
	[1,3)	14.0	15.0
	[3,5)	16.5	17.5
	[5,7)	18.0	19.5
	[7,10)	19.0	20.5
	[10,15)	20.0	23.0
	[15,30)	21.0	24.0
	[30,∞)	23.0	26.0

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

10. This Instruction enters into force on June 29, 2023.

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