(5)

paragraph 8 is amended as follows: (a) the introductory wording is replaced by the following: ‘8. With a view to restoring confidence in the financial sector, Portugal shall adequately recapitalise its banking sector and ensure an orderly deleveraging process. In that regard, Portugal shall develop and agree with the Commission, the ECB and the IMF a strategy for the future structure and functioning of the Portuguese banking sector so that financial stability is preserved. In particular, Portugal shall:’; (b) points (a) to (g) are replaced by the following: ‘(a) advise banks to strengthen their collateral buffers on a sustainable basis and monitor the issuance of the government guaranteed bank bonds, which has been authorised up to EUR 35 billion in line with Union State aid rules; (b) follow closely the plans presented by the banks to reach a core Tier 1 ratio of 9 % by end-2011 and 10 % at the latest by end-2012. The capital requirements stemming from valuing sovereign debt based on market prices according to the European Banking Authority shall be met in June 2012 together with the capital implications from the special on-site inspections programme and the transfer of the banks’ pension funds to the State social security system. Banks shall present in February 2012 plans on how they intend to reach their capital needs in that year. If banks cannot reach the capital requirement thresholds on time, they might temporarily require public provision of capital, which for privately owned banks shall be available through the EUR 12 billion bank solvency support facility established under the Programme; (c) ensure a balanced and orderly deleveraging of the banking sector, which remains critical to eliminating funding imbalances on a permanent basis. Banks’ funding plans aim at a reduction in the loan-to-deposit ratio to around 120 % by the end of the Programme and a reduction of the reliance on Eurosystem funding during the duration of the Programme. These funding plans shall be reviewed quarterly, with the next one due before the third Programme review. The Bank of Portugal shall take appropriate action in case of deviations from the banks’ funding plans; (d) complete the sale of Banco Português de Negócios respecting the Union State aid rules; (e) ensure that the state-owned Caixa Geral de Depósitos (CGD) is streamlined to increase the capital base of its core banking arm as needed in 2011 without relying on the sale of its insurance arm. This sale is expected to take place in 2012 directly to a final buyer and to contribute to meeting that year’s additional capital needs. Insofar as these needs cannot be met from internal group sources, CGD shall be provided with government capital support outside of the bank solvency support facility; (f) ensure that the partial transfer of the banks’ pension funds to the State social security system is done under actuarially balanced conditions, as well as respecting Union competition and State aid rules. In order to avoid having to take recourse to the bank solvency support within the Programme financing envelope, the Portuguese Government shall offer banks help to cover the impact of the transfer on capital by using part of the transfer to acquire common equity in the banks. The remainder of the transferred funds shall be deposited in a blocked account until the completion of the third Programme review; (g) finalise the legal framework for access to capital from public sources by end-January 2012 consistent with Union State aid rules and in line with the principles laid down in the Memorandum of Understanding;’; (c) the following points are added: ‘(i) ensure that before the third Programme review banks have incorporated the available results of the special on-site inspections programme in the stress test exercise with a 6 % Core Tier 1 threshold; (j) complete the legal framework for early intervention, resolution and deposit insurance for banks by end-2011 and by the same deadline the one for corporate and household debt restructuring.’;