Notice No. 8/96 of the Bank of Portugal

Notices from the Bank of Portugal Notice No. 8/96

Having regard to the provisions of Council Directive 93/6/EEC of 15 March 1993 on the adequacy of own funds of investment firms and credit institutions, the Bank of Portugal, using the powers conferred upon it by Article 99 of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law 298/92 of 31 December, establishes that Article 19th-A shall be added to Notice No. 12/92, published in the Official Gazette, 2nd Series, of 29 December 1992, with the following wording:

Article 19th-A

1 - This article is only applicable to institutions that are obliged to comply with the own funds requirements provided for in items i) and ii) of point 1 of No. 3 and in point 1 of No. 4 of Notice No. 7/96 and only for the purposes of satisfying those requirements and covering potential risks of the trading portfolio for the purposes of compliance with the large exposure limits, as provided for in the respective notice.

2 - For the purposes of the definition of own funds provided for in this article, the following are considered positive elements, in addition to those provided for in No. 3:

i) Net profits from the trading portfolio, after deducting any foreseeable charges and dividends and after deducting net losses recorded in the remaining activity, provided that none of these amounts have already been included in the calculation of own funds, in accordance with point 6 of No. 3 or point 6 of No. 4 of this notice;

ii) Short-term subordinated loans that meet the conditions established in point 3 of this article;

iii) The elements referred to in point 7 of this article.

3 - Contracts formalizing short-term subordinated loans must comply with the provisions of Article 14th of this notice, with the following specializations:

a) They must establish an initial repayment period of not less than two years;

b) They must provide that the capital cannot be repaid, nor interest paid, if such repayment or payment implies that the institution's own funds fall below 100% of its global own funds requirements.

4 - Institutions whose own funds include short-term subordinated loans must inform the Bank of Portugal of all repayments of these loans, when such repayments result in their own funds falling below 120% of their global own funds requirements.

5 - Short-term subordinated loans cannot exceed 200% of the basic own funds available to satisfy the requirements referred to in point 1 of this article.

6 - To determine the available basic own funds referred to in the preceding point, institutions:

a) Must calculate the own funds requirements provided for in item iii) of point 1 of No. 3 of Notice No. 7/96 and allocate them to their own funds, not covered by this article, in a proportional manner, taking into account the limits provided for in Nos. 5 to 7 of this notice;

b) May deduct the elements provided for in No. 9 of this notice, in the first instance, from the supplementary own funds.

7 - Institutions may assimilate to short-term subordinated loans the elements provided for in points 9, 10 and 13 of No. 3 of this notice.

8 - For the purposes of this article, the concept of trading portfolio is defined in Annex II of Notice No. 7/96.

31 December 1996. - The Minister of Finance, António Luciano Pacheco de Sousa Franco.