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Basel III: the impact of new capital requirements on profitability of Portuguese Banks
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This empirical study aims to explore the impact of increased capital ratio requirements, on the ROE of the
Portuguese banking sector. The paper employs both a quantitative- and qualitative approach, with the
qualitative approach as the main method of research. The method adopted to conduct the qualitative research
was semi structured elite interviews with banking executives. Higher capital requirements decrease the ROE
of banks in Portugal, but huge impairments charges, macroeconomic factors and increased costs of deposits
are clearly the dominant reasons for the reduced levels of ROE the past years. Among the measures taken to
increase capital ratios, reduction of RWAs and non-core assets have been the main focus, but the issuance of
CoCos is regarded as the most expensive measure due to high interest payments. However, the CoCos will
not have any effect on the ROE in the long term. It is difficult to draw any conclusions on the impact of more
equity in the balance sheet on the ROE of Portuguese banks, as many banks currently don’t generate enough
money to pay back on shareholders´ investments.
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Portugal Banking Regulation Capital ROE Deleveraging Cost of equity