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Nov. 29 (Bloomberg) -- The Bank of Portugal said risks for Portuguese lenders may continue to increase in the short term as economic conditions deteriorate.
“The worsening of the economic and financial conditions was reflected in a deterioration of profitability in the Portuguese banking system, as well as a greater materialization of credit risk and market risk,” the Bank of Portugal said in a report on financial stability.
“In the short term, this tendency of worsening of risks should persist,” the report said. “However, in the framework of the financial assistance program there are various instruments that allow for the lessening of the impact of these shocks on the Portuguese financial system, namely in terms of possible additional capital needs.”
Portugal’s 78 billion-euro bailout plan earmarks as much as 12 billion euros to recapitalize banks if needed.
Under the program’s terms, Portuguese banks must have a core Tier 1 capital ratio, a measure of financial strength, of at least 9 percent by the end of this year. The ratio must stay at 9 percent by the end of June after the value of government bond holdings are written down to market prices, and must rise to 10 percent by the end of 2012.
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