The Portuguese financial system is fully integrated with the international and European financial markets. The Portuguese banking regulator, the Bank of Portugal (BdP), joined the European System of Central Banks (ESCB) on 1 January 1999. As a result, the definition and implementation of the country's monetary and exchange rate policy, the management of official currency reserves, the efficiency of the payment systems and the issuing of banknotes are now controlled by the ESCB.
Again as a consequence of such integration, the Portuguese regulatory system governing credit institutions and financial companies is identical in broad terms to the legal framework in force in other EU Member States.
Since the conclusion of the Financial and Economic Assistance Programme in 2014, the Portuguese economy has been slowly improving, even though there are still some uncertainties as to the financing conditions Portugal may face in the foreseeable future.
Regarding the political context, the left-wing government has maintained the necessary majorities in Parliament and, following a few years of intense privatisations of state-owned companies, 2016 marked the first year of the 21st century without privatisations in Portugal.
The financial sector still went through some difficulties that recently led to the application of resolution measures by the BdP to Banco Espírito Santo (BES) and Banco Internacional do Funchal (Banif).
However, the Portuguese banking industry saw some positive changes in 2016. At the beginning of the year, following its privatisation in 2015, Portugal's post office network launched its own banking service in over 50 branches (Banco CTT), and the Spanish financial institution Bankinter completed the purchase of Barclays' operation in Portugal. Following a change in the Portuguese legislation, Spanish Caixa Bank purchased 39.02 per cent of Banco BPI's share capital, and now holds 84.52 per cent of its equity, in a transaction that amounted to approximately €650 million.
More recently, the sale process of the state-rescued Novo Banco is expected to be concluded in the short term, with US private equity firm Lone Star aiming to acquire the majority of the bank's share capital.
The Portuguese economy still offers interesting opportunities to domestic and international investors alike, and Portuguese banks are seeking to attract fresh equity. Investment is expected to recover in the medium term with support from EU funds, which will help rebalance the economy by increasing the share of tradable sectors.
The five largest banks in Portugal (by gross assets and in no particular order) are Caixa Geral de Depósitos (a state-owned bank), Banco Comercial Português, Banco BPI, Santander Totta and Novo Banco.
ii THE REGULATORY REGIME APPLICABLE TO BANKS
The Portuguese regulatory regime applicable to credit institutions and financial companies is set out in the Credit Institutions and Financial Companies General Legal Framework, enacted by Decree-Law No. 298/92, of 31 December 1992, as amended from time to time (RGICSF).
In turn, payment institutions are subject to the Legal Framework of Payment Institutions and Payment Services, enacted by Decree-Law No. 317/2009, of 30 October, as amended from time to time.
Credit institutions must take the legal form of companies limited by shares (sociedades anónimas) with their registered offices located within the Portuguese territory and are, therefore, subject to the general principles of company law as well as to the banking regulations.
Banks are a central part of the Portuguese financial system not only because of the sheer volume of their business but also because of their involvement in every segment of the Portuguese economy. Portuguese banks may provide a full range of banking services for corporate and private customers, including lending, taking deposits and other repayable funds from the public, granting credit on their own account to third parties in general, and collection and payment services within or outside Portugal (either through foreign branches or on a freedom-to-provide-services basis). Foreign credit institutions may also pursue their banking activity in the territory under the right of establishment rules or on a freedom-to-provide-services basis (this latter structure is reserved to credit institutions of other EU Member States only) provided that the relevant passporting requirements are duly fulfilled.
The BdP is the Portuguese central bank, being responsible for the prudential and market conduct supervision of credit institutions, financial companies and payment institutions with a view to ensuring the stability, efficiency and soundness of the financial system, as well as compliance with the rules of conduct and transparency requirements towards bank customers, thereby ensuring the safety of deposits and depositors, and the protection of consumer interests.
In addition to the RGICSF, credit institutions, financial companies and payment institutions are also required to comply with the notices, instructions and circular letters issued by the BdP.
By the same token, whenever credit institutions or financial companies also pursue financial intermediation activities, they will be subject to the supervision of, and regulations issued by, the Portuguese Securities Exchange and Market Commission (CMVM). The same applies to the insurance intermediation activities that may be pursued by banks, which are also subject to the supervisory powers of the Portuguese Insurance and Pension Funds Supervisory Authority, being required in such case to comply with the regulations or circular letters issued by the latter.
In view of the above, credit institutions may ultimately be subject to the supervisory powers of the three above-mentioned Portuguese regulatory authorities, in addition to the European Central Bank (ECB), as a result of the introduction of the single supervisory mechanism (SSM) in 2014.
Finally, it is worth mentioning that the government is currently considering the possible creation of a new independent financial supervisor to coordinate the Portuguese regulatory entities, which would ensure the overall stability of the banking system and carry out any potential bank bailouts (currently, these responsibilities are in the hands of the BdP). This matter is expected to see further developments in the next few months, as the preliminary drafts of the laws implementing the intended regulatory regime reform should soon be delivered to Parliament.
iii PRUDENTIAL REGULATION
i Relationship with the prudential regulator
Given its participation in the SSM, the BdP qualifies as a ‘national competent authority', which implies that Portuguese credit institutions considered as ‘significant' are supervised by the ECB, while those deemed less significant are directly supervised by the BdP and, indirectly, by the ECB.
Four groups of Portuguese banks are supervised by the SSM, which were considered ‘significant' to this effect.
The main means of supervision of the BdP are as follows:
- a issuance of notices and recommendations regarding rules of conduct for the management of banks;
- b establishment of rules of conduct for banks ensuring transparency of information during the pre-contractual and contractual stages (including the verification of maximum rates and charges for banking services rendered by credit institutions);
- c assessment of complaints presented by banks' customers;
- d analysis of the information regularly reported by banks;
- e assessment of banks' exposure to risks, and of the adequacy of banks' strategies, mechanisms and procedures to mitigate those risks;
- f analysis of the result of the stress tests imposed on banks;
- g evaluation of systemic risks; and
- h on-site inspections.
The BdP has the power to enforce Portuguese banking laws and regulations through:
- a fines and ancillary penalties;
- b injunctions for the fulfilment of certain duties;
- c seizure of documents and valuables;
- d special audits through on-site inspections; and
- e withdrawal of a bank's authorisation.
Following the 2008 financial crisis, Portuguese banks were required to increase their own funds and restructure their capital to meet the new requirements on minimum capital, in addition to providing information on complex financial instruments and implementing new depositors' protection rules. The rules applicable to the recovery and resolution of credit institutions also went through a major review and change.
On-site inspections on a permanent basis became a normal practice.
The CMVM is the relevant supervisory authority for the financial intermediation activities pursued by Portuguese credit institutions and financial companies and their activities in the stock markets. It is entrusted with the task of supervising and regulating securities and other markets in financial instruments, as well as the activities of all those who operate within said markets.
The supervision carried out by the CMVM includes the following:
- a constant supervision of the acts of individuals and entities that operate in capital markets for the purpose of detecting unlawful acts, particularly in stock market trading;
- b monitoring compliance with rules;
- c detection of criminal offences;
- d punishment of infringers, namely by the imposition of fines;
- e granting registrations of individuals and transactions to check compliance with applicable rules; and
- f information disclosure, particularly on listed companies, through its website.
ii Management of banks
The board of directors of a credit institution (with at least three members) has prominent powers to administer and manage the operations and financial matters of the entity. Members of the management and supervisory boards and senior management must comply with the requirements imposed in the RGCISF, and the regulations issued by the BdP on suitability, professional qualification, independence and availability. Additionally, members of the management and supervisory boards of credit institutions that are significant in size may not hold more than four non-executive positions simultaneously, or one executive position with two non-executive positions. The RGICSF requires credit institutions to put corporate governance arrangements in place that are sound and proportionate in view of the risks taken by the institution.
Significant attention has been devoted in Portugal to remuneration policies during the past few years, as has been the case at both the European and international level. In particular, the RGCISF includes the provisions of the CRR/CRD IV package relating to the obligation of credit institutions to put in place remuneration policies that are consistent with their risks. In summary, these provisions relate to the obligation to make a clear distinction between the criteria used for setting fixed remuneration and variable remuneration; the obligation that the remuneration policy is subject to the approval of the general shareholders' meeting; and the principles that will apply to variable elements of remuneration.
iii Regulatory capital and liquidity
The rules on capital adequacy requirements have undergone deep reform with the entry into force of the CRD IV package, which created a single rulebook throughout the European Union in this domain.
Portuguese law establishes minimum share capital requirements for each type of credit institution - including banks - and financial companies. For instance, banks are required to have a minimum share capital of €17.5 million, and investment firms are in general required to have a minimum share capital of €5 million.
In addition, since 1 January 2014, the rules on regulatory capital adequacy requirements are harmonised throughout the European Union. Banks and other credit institutions and investment firms must meet the rules on regulatory capital and liquidity established by the CRD IV package.
Under Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms (CRR), institutions must maintain a common equity Tier 1 (CET1) capital of at least 4.5 per cent of their risk-weighted assets (RWAs), a Tier 1 capital of at least 6 per cent of their RWAs and a total capital of at least 8 per cent of their RWAs.
However, and as agreed with the ECB, the European Commission and the International Monetary Fund in the context of the bail-out package provided to Portugal in 2011, the BdP determined that Portuguese credit institutions and investment firms must have a CET1 ratio not below 7 per cent. This obligation is to last until the adoption in full by these entities of the rules applicable under the CRD IV package.
The BdP is entitled to demand credit institutions and financial companies to promptly adopt the measures or take the actions that are necessary to overcome any non-compliance by them with the rules regulating their business, including the capital adequacy guidelines.
Among the powers granted to the BdP for this purpose is the power of suspending or substituting one or more members of the management and the supervisory bodies of a credit institution, and the power to appoint both a provisional board of directors and a supervisory committee or a sole supervisor.
In the event that a Portuguese credit institution becomes undercapitalised, the BdP may apply corrective measures over a credit institution in distress, which may consist of, notably, the presentation by the credit institution of a restructuring plan, setting out measures such as a share capital increase, a reduction thereof or the disposal of shareholdings or other assets; the suspension or substitution of one or more members of its management and supervisory bodies; or the subjection of certain acts or transactions to the prior approval of the BdP.
Where the corrective measures applied are not sufficient for the credit institution to recover, or is deemed insufficient to that end, the BdP may also elect to appoint a provisional board of directors; in specific cases, apply a resolution measure; or even repeal the authorisation of the credit institution in Portugal, causing its dissolution and winding-up.
Further changes are expected, most notably those resulting from the adoption of the acts implementing the CRD IV and the CRR, which are to be enacted in coming years.
iv Recovery and resolution
The BdP is the competent regulatory authority for the purposes of approving and implementing resolution procedures in this jurisdiction.
The BdP may apply certain resolution measures in the event that a bank is in a situation where it may need to cease to be duly authorised for the pursuit of a banking activity (or presents a ‘serious risk' of non-compliance), which may consist of either the disposal, in part or in whole, of the business of the credit institution to another credit institution, or the transfer, in part or in whole, of its business to one or more transition banks, to be funded by the Resolution Fund, which shall be supported by contributions by Portuguese banks.
Such resolution measure must be ‘adequate' and ‘proportional' concerning the possible (or likely) consequences of such measure on the financial soundness of the institution, the interests of its depositors and, generally, the effects of the resolution on the stability of the financial system.
Among others, the RGICSF establishes three situations deemed as a ‘serious risk' of non-compliance: when a bank's losses surpass its share capital, when its assets are lower than its obligations or when it is unable to fulfil its obligations. We have witnessed the resolution of four banks: Banco Privado Português, Banco Português de Negócios, BES, and Banif.
Portuguese law, in line with the Banking Recovery and Resolution Directive (BRRD), establishes an order of priority regarding liability for the losses of an institution: first, the shareholders are held liable for the losses; only subsequently are the creditors held liable. No creditor can be put in a worse situation resulting from a resolution measure than it would be in in a standard winding-up procedure.
With the enactment of the BRRD, the EU Member States created a harmonised framework to address certain financial institutions that are failing or likely to fail with the intent to prevent their insolvency or to minimise the negative consequences arising from such insolvency.
The following are the conditions that may evidence the existence of risks that jeopardise the ability of a credit institution to comply with its legal obligations and therefore trigger a resolution procedure:
- a risk of non-compliance with the minimum mandatory legal requirements regarding capital adequacy ratios;
- b existing difficulties in maintaining a stable liquidity situation, which can lead to non-compliance with the legal duties imposed on credit institutions;
- c the system of governance in place or the management body of the credit institution can no longer provide adequate assurances of sound and prudent management undertakings; and
- d the accounting organisation or the internal control system of the credit institution present serious deficiencies that prevent a proper evaluation of the financial situation of the institution.
Under such circumstances, since 1 January 2016 the BdP, together with the ECB, is allowed to directly intervene in a failing credit institution or investment firm and apply certain measures called ‘resolution tools'.
The resolution tools are as follows:
- a partial or total transfer of the business to another authorised institution;
- b partial or total transfer of the business to a bridge bank;
- c segregation and partial or total transfer of the business to asset management vehicles; and
- d bail-in procedures (imposing direct losses on creditors - bondholders and depositors - of the institutions).
When addressing a failing institution, the regulatory authorities are entitled to adopt one or more resolution tools as they deem appropriate for each case.
Whenever adopting such measures, the BdP should follow certain general principles such that shareholders bear the first losses, that creditors bear losses after the shareholders in accordance with the priority of their credits, and that creditors of the same class shall be treated in an equitable manner.
Whenever a resolution measure is applied, the management and supervisory bodies of the bank are suspended.
The BdP must then appoint new directors, who may veto the decisions approved by other corporate bodies of the bank or directly execute BdP's decisions without the consent of shareholders.
Each deposit-taking institution must have in place a recovery and a resolution plan. These plans must be submitted to the BdP and must be drafted in accordance with the applicable legal requirements. The recovery plan has the purpose of identifying the measures that must be applied when such institution is in a situation of financial imbalance (or, at least, when there is a risk of getting into such a situation). In contrast, the resolution plan must ensure that all the relevant information is provided to the BdP to allow an orderly resolution of the bank through the application of resolution measures.
With the exception of certain definitions concerning the ranking or priority of creditors, local insolvency rules (e.g., insolvency procedures and clawback rules) shall not apply.
Portuguese law first enacted resolution measures in 2012 (the first version of the BRRD dates back to 2011), and the BRRD was fully implemented in Portugal by August 2015, although certain measures only entered into force on 1 January 2016.
iv CONDUCT OF BUSINESS
Credit institutions operating in Portugal, whether domestic (Portuguese credit institutions' head office must be located in Portugal) or foreign entities providing cross-border services in Portugal (either through a branch or on a freedom-to-provide-services basis), must comply with Portuguese law (including regarding banking secrecy, data protection and conflicts of interests), notably legal provisions governing the implementation of monetary policy and the reporting of information on their activity within the Portuguese territory, the decisions and measures taken on monetary, financial and foreign exchange policies, as well as those that must apply in the interest of the general good.
This concept of the ‘general good' is not crystal clear, and presents some difficulties regarding its interpretation. While Portuguese law does not provide a definition of the ‘general good', it is generally acknowledged that such concept includes, inter alia, rules dealing with:
- a protection of recipients of services;
- b protection of workers;
- c consumer protection;
- d preservation of the good reputation of the national financial sector;
- e prevention of fraud; and
- f protection of intellectual property.
Furthermore, rules of ‘general good' must not have a discriminatory nature, and shall be mandatory to protect the ‘general good', as well as proportionate to pursue that goal.
The above-mentioned institutions must also comply with Portuguese law requirements on marketing (i.e., the prohibition on misleading or subliminal advertising, aggressive commercial practices) and other consumer protection-related requirements.
According to Portuguese law, consumer protection rules are applicable to banks as regards information duties, marketing requirements, pricing and interest rates.
Banks are required to:
- a provide detailed pre-contractual information;
- b assess the creditworthiness of a consumer before granting a loan;
- c provide specific information throughout the duration of the loan agreement;
- d grant a mandatory cooling off period; and
- e allow for an early repayment of the loan.
There are also specific rules applicable to housing loans, consumer credit, deposits and complex financial products.
Banks must inform the BdP about pricing applicable to their services, which are publicly available on the supervisor's website.
Maximum interest rates on loan agreements entered into by banks and consumers are determined by the BdP and regularly updated.
Domestic credit institutions and foreign institutions carrying out their activity within the Portuguese territory through a branch are also subject to the Portuguese law requirements on anti-money laundering and the financing of terrorism.
In addition, Portuguese credit institutions are required to establish several internal departments in respect of, for example, audit, risk management, complaints handling and compliance. In this context, they must have an internal organisation structure that is well defined, transparent and that may be perceptible, giving support to the pursuit of their activity; and must implement an internal compliance system that must be adequate and effective in ensuring that the management and control of transactions carried out is done in a prudent manner.
The facts and elements concerning the contractual relationship between a credit institution and its clients are subject to secrecy (even if the data subject is no longer a customer of the institution). These facts and elements include, in particular and without limitation, clients' names, details of their bank accounts and respective movements further to other banking transactions. These elements may only be disclosed to third parties if the client has authorised such disclosure (unless the third party is the BdP, the CMVM, the Deposits' Guarantee Fund or the Investors' Indemnity System, within the scope of their respective attributions or while assisting the tax or enforcement authorities).
Portuguese credit institutions may fund their activities in different ways, including by gathering retail deposits from the public, debt issuance and other market instruments.
There are no restrictions on the issuance of such instruments, but they are subject to the securities market regulations and must be verified by the BdP to confirm they meet the conditions established by the bank solvency regulations.
Although we witnessed a slight decrease in 2016, the main funding for Portuguese credit institutions continues to be the deposits taken from their customers, while the total amount of funding obtained by Portuguese banks from the ECB has slightly decreased.
vi CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS
i Control regime
In terms of regulatory approvals, the acquisition of a significant stake in a Portuguese credit institution would entail the need to file several communications and obtain several authorisations (or non-objection decisions), both by the buyer and by the seller, in line with the Acquisitions Directive, which has been implemented into Portuguese law by Decree-Law No. 52/2010, of 26 May.
Under Article 2-A, Paragraph ee) of the RGICSF, a significant stake means a direct or indirect holding of at least 10 per cent of the share capital or voting rights of the target entity that for any reason makes it possible to exercise a significant influence over the management of the target entity.
By the same token, prior notice must be given to the BdP, and approval must be granted by the latter regarding acts that involve the increase of a qualified holding whenever the proportion of the voting rights or of the share capital held would reach or exceed, as applicable, 10, 20, 33 or 50 per cent of the share capital or voting rights in the target company, or as a consequence of which the credit institution would become an affiliate of the buyer (as defined by law).
The seller would need to notify the BdP of its decision to sell its stake in the Portuguese credit institution and the subsequent loss of control of the entity. This notification must be made once the decision to sell is made and, in any case, prior to closing.
The potential buyer, with cooperation from the seller, would have to obtain approval (a non-objection decision) from the ECB to acquire a significant stake in the Portuguese credit institution. This authorisation would be obtained through the following procedure:
- a the application is submitted by the buyer to the ECB (through the BdP, the point of entry into the SSM);
- b the BdP acknowledges receipt of such file within a maximum of two business days, and either confirms that the filing is complete or requests further information until it is satisfied with the level of disclosure of the buyer. The 60-business day term for the ECB to issue its non-objection decision will start once the filing is deemed complete;
- c during this term, if additional information is requested by either the BdP or the ECB, the period for a decision may be suspended for up to either 20 or 30 business days, the latter if the applicant (the buyer) is not a financial regulated entity within the EU;
- d the BdP shall send the ECB a preliminary decision of objection or non-objection to the acquisition within a period of 45 business days as from the date it confirmed the filing was complete, and the ECB shall then either accept the preliminary decision of the BdP or reject and amend that decision, issuing a final decision within 15 business days as from receiving the preliminary decision from the BdP, even if the BdP did not spend the full 45 business days it had to prepare the preliminary decision;
- e in the event that the 60-business-day period referred to above lapses without a decision being issued by the ECB, the ECB will be deemed to have granted its non-objection to the acquisition; and
- f finally, as of the date of issuance of the non-objection decision (or the lapsing of the term for its issuance), and unless instructed otherwise therein (which may occur in an asset disposal carried out within a recovery scenario), the parties may complete the envisaged transaction within a period of up to one year.
The target Portuguese credit institution itself must then notify the BdP immediately after the closing of the transaction.
The contents of the above-mentioned applications, including the information to be provided therein, are set out in BdP Notice No. 5/2010.
In the event that the proposed acquisition triggers a change of control in the target credit institution or a control relationship is established, the proposed buyer must deliver a business plan containing, among other matters, information on the strategic development plan relating to the acquisition, forecasts (including provisional pro forma accounts of the target entity, on an individual and consolidated basis, for a period of three years, and details on the main changes to be introduced in the target credit institution. Antitrust authorisations may be also required, depending on the buyer.
The acquisition of a significant stake is also subject to special registration with the BdP, and the application for such registration should be filed within 30 days following the granting of the relevant regulatory authorisation for the acquisition.
Failure to notify the BdP, carrying out the acquisition or increasing a qualifying shareholding during the decision period of the BdP, or non-compliance with a refusal of the proposed transaction by the BdP, without prejudice to the application of other sanctions, may determine the blocking of the acquired voting rights.
Furthermore, any acquisition of a holding equal to or in excess of 5 per cent of the voting rights or of the capital of a credit institution is also required to be notified to the BdP within 15 days of the acquisition of such holding so that the BdP can assess whether it is to be considered a qualifying shareholding.
Portuguese general statutory limitations, rules on financial assistance, capital maintenance and other similar principles established by Portuguese law may limit the ability of a Portuguese bank to grant security interests for the obligations of a purchaser to repay acquisition finance, or may require that the guarantee or security be limited to a specific amount.
ii Transfers of banking business
Under Portuguese law, there are essentially two options for the transfer of the business of a bank: a demerger or partial spin-off, or an asset deal or direct transfer (sale) of business (trespasse). As explained below, the consent of customers or any other third party2 (excluding shareholder approval) may not be necessary in the event of the transfer being structured pursuant to the first option.
Demerger or partial spin-off
Through this option, the bank would undergo a partial spin-off by demerger to segregate the business and incorporate it into another entity. The requirements and corporate procedure applicable to this demerger shall be governed by Portuguese law as the personal law of the Portuguese bank. The business to be transferred within the spin-off should constitute an autonomous business unit capable of pursuing a productive process.
As regards the need to obtain the consent of customers or any other third party in a spin-off, and although not on an indisputable basis, certain Portuguese scholars argue that the consent of the affected counterparties is not required for a business transfer following a demerger governed by Portuguese law. Following this line of reasoning, this alternative appears to be more attractive than the one described below, as it offers a simpler and more straightforward means of transfer from the perspective of the need to obtain the consent of customers or any other third party.
Asset deal or direct transfer (sale) of business (trespasse)
Under Portuguese law, if a business is transferred from one party to another as a standalone commercial establishment (thus integrating certain elements that form an autonomous business unit within the seller's activity capable of pursuing a productive process), the acquisition thereof shall be qualified as a transfer of business as a going concern.
A transfer of business as a going concern could be governed by a single master sales agreement governing the transfer of each of the assets and liabilities (or classes of assets and liabilities) of the business of the transferor bank to be transferred. Note, however, that a transfer of agreements with (or liabilities to) the customers and third parties of such Portuguese bank that are to be transferred as a transfer of business as a going concern shall require, as a general rule, the consent of the customers and contractual counterparties, except for certain particular situations (e.g., a transfer of employment contracts or the leased premises or equipment of the Portuguese bank).
Pursuant to Portuguese law, a contractual position in any agreement with mutual undertakings (also named bilateral agreements, such as swaps, etc.) may only be assigned to a third party if the counterparty of such agreements consents to said assignment.
Although this consent in these situations is mandatory, it may be granted either before (e.g., in the agreement itself concluded between the parties that is being assigned) or after the execution of the relevant assignment agreement. If this consent is granted prior to assignment, it shall only be deemed effective following the counterparty's notification or acknowledgment that such assignment has occurred.
This consent for the assignment of a counterparty's contractual position in any agreement with mutual undertakings may be either explicit or tacit.
As a general rule, if no express objection is received, it may be construed that the relevant customer or third party has consented to such transfer whenever it has carried out certain actions that correspond in practice to an express consent (e.g., if it pays the transferee - instead of the transferor - any outstanding amounts due pursuant to the assigned agreement).
In turn, whenever the assigned agreement does not have mutual undertakings but only one of the parties thereto is required to fulfil certain obligations or undertakings (e.g., the payment of a bank overdraft), the assignment of the other party may be carried out without such party's consent (this rule applies, for example, whenever an assignment of receivables is involved).
If consent is required but not obtained (either the affected counterparty does not give explicit consent or does not engage with the transferee, thereby implying tacit consent), the transferor will remain formally and legally bound under Portuguese law, thus bearing the economic exposure towards the affected counterparty.
It is also worth noting that the above is a general description of the legal regime under Portuguese law for the transfer of assets and liabilities. However, specific analysis of each asset and of the terms of each agreement to be transferred would still need to be carried out. By way of example, change of control provisions could be triggered as a result of a transfer of business. On the other hand, a transfer of real estate property or other moveable assets subject to registration may determine the need to comply with certain formal requirements and to update the relevant registers. Issues relating to, inter alia, a transfer of direct debit mandates, bank guarantees issued by a bank and positions of such bank in syndicated loans may also be triggered as a result of a transfer of business as a going concern.
vii THE YEAR IN REVIEW
While asset risk has broadly stabilised, Portuguese banks' profitability in 2016 remained weak due to a sluggish business environment, high costs for low quality assets and lower trading gains than those seen in 2015.
However, the structure of banks funding is improving, with a loan-to-deposit ratio close to 100 per cent since end-2015, a higher share of customer resources, and slightly lower funding from the ECB.
Portuguese banks are also taking steps to improve their capital ratios and are trying to attract fresh equity. Banco Comercial Português, one of Portugal's five largest banks, raised its capital by €1.3 billion in total through the issuance of shares, and state-owned Caixa Geral de Depósitos, Portugal's largest bank, is in the process of increasing its equity base by approximately €4 billion through various measures.
Additionally, virtually all banks in the system are restructuring their franchise to support earnings in parallel to selling non-core assets to improve their capitalization. These asset sales are, however, dependent on current market conditions and valuations.
Regarding banking law, an innovative amendment to the RGICSF was introduced by Decree-Law No. 20/2016, of 20 April, with the purpose of fostering investment in the banking system. According to this new statute, shareholders of credit institutions should, at least once every five years, review the limitations to holdings and the exercising of voting rights provided for in their by-laws; and voting caps and supermajorities can now be removed with a resolution of the shareholders' meeting. This new legal framework opened the opportunity for Spanish Caixabank to acquire the majority of BPI's share capital in a transaction that was welcomed by investors.
Also in 2016, following the entry into force of the Crowdfunding Act (approved by Law 102/2015, of 24 August), the CMVM issued Regulation No. 1/2016, of 25 May, further developing the rules applicable to the two main types of investment crowdfunding: equity and loan crowdfunding.
Regarding recent developments on information disclosure, in June 2016 the government implemented amendments to the Transparency Directive through the entry into force of Decree-Law No. 22/2016, of 3 June, and later that year Directive 2014/107/EC, of 9 December 2014, commonly designated by the Common Reporting Standard, was implemented through the entry into force of Decree-Law No. 64/2016, of 11 October.
viii OUTLOOK and CONCLUSIONS
While the Portuguese economy has continued to recover for the fourth consecutive year, the country remains vulnerable to shocks. Uncertainty about investment, the banking sector and the implementation of structural reforms pose some downside risks to a sustainable recovery.
The banking system's main challenges remain weak asset quality, thin capital buffers, low profitability and relatively high exposure to Portuguese sovereign debt.
Nevertheless, Portugal's annual real GDP growth accelerated significantly to 1.6 per cent in the third quarter of 2016, supported by a rebound in net exports, and economic recovery is expected to pick up modestly in 2017 and 2018.
As previously mentioned, the banking segment witnessed some important transactions in 2016, and further transactions are expected to follow. The sale process of the state-rescued Novo Banco is likely to be concluded in the next few months. US private equity firm Lone Star is aiming to acquire 75 per cent of the bank's capital, with the remaining 25 per cent being owned by the Portuguese Resolution Fund. Although accepted by the Portuguese government and the Bank of Portugal, this proposal still needs to be approved (and eventually negotiated) by the ECB and the Competition Directorate General of the European Commission. The government has stressed that the bridge bank needs to be sold by August 2017.
With regard to trends in the banking sector, there has been a notable intensification of the prudential banking requirements and supervision through the action of the SSM. We believe that this trend will continue to set the pace of the Portuguese banking industry in the coming years.