Minister: Novo Banco crisis won’t destabilise Portugal’s public accounts

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Portugal’s Minister of Finance, Mário Centeno, has stated that Government capital injections into the country’s ailing Novo Banco will not impact public finances.

At the end of March, Novo Banco – created from collapsed Banco Espírito Santo in 2014 – announced a record loss of €1.4Bn for 2017.

Rescued by the Portuguese state at a cost of €5Bn, it was sold last year to US private equity firm Lone Star which injected €1Bn under the terms of the acquisition deal.

The Minister also stressed his disagreement with Brussels that the Government’s recapitalisation of the country’s largest bank Caixa Geral de Depósitos should feature in the state’s budget accounts for 2017, saying that the operation had “no relevance whatsoever on the country’s economic and financial” health.

Eurostat decided to include the impact of Caixa Geral de Depósitos recapitalisation on 2017 accounts which put Portugal’s deficit at 3%. The Government disagrees stating the deficit was in fact 0.91% .

Last year it received a €3.944Bn capital injection from the Portuguese state including €2.5Bn of “fresh money”.

In an interview with the weekend newspaper ‘Expresso’ (30 March), Mário Centeno insists, “Our understanding on the matter, which we maintain, is that this operation will not have any economic or financial relevance on Portugal’s finances, but purely an accounting one.”

Novo Banco’s annual losses, up 77% on 2016, was down to a 50% rise in impairments and a drop in net interest income. It meant Novo Banco needed €791.7 million from Portugal’s Bank Resolution Fund which has a 25% stake in Novo Bank.

The capital injection, under the contingency capital mechanism, is meant to keep solvency ratios at Portugal’s third largest bank at levels required by the regulator.