Government earmarks €600 million for Novo Banco in 2020

The Government estimates that the recapitalisation of Novo Banco by the Resolution Fund will cost €600 million in 2020.

With the sale of 75% of Novo Banco to the US fund Lone Star in 2017, the State made an agreement to recapitalise the bank from the Resolution Fund (a fund controlled by the State) to cover capital losses and lack of liquidity created by the toxic assets it inherited from the collapsed bank Banco Espírito Santo in 2015 and included mortgage default property and non-performing loans.
In all, according to this agreement, the Resolution Fund can inject €3.89Bn into Novo Banco by 2026.
Regarding 2017 and 2018, Novo Banco has already received €1.941Bn while the amount to be injected into the bank this year still has to be seen after the close of end of year accounts for 2019.
The newspaper Expresso reported in November that the Fund could be called upon to inject cash into Novo Banco in a one-off payment in 2020, a solution that Novo Banco desires but the Minister of Finance. Mário Centeno is reluctant to do because of its impact on public accounts.
However, an amount of €600 million has been accounted for in the State Budget for 2020. For the cash injection the Resolution Fund (which is financed by the banks operating in Portugal), has borrowed money from the Treasury because the money from the banks did not cover Novo Banco’s requirements, a loan that should not exceed €850 million per annum.
In the outline State Budget for 2020, despite the Government having factored in €600 million for Novo Banco, a loan of €850 million to the Resolution Fund is expected in the medium to long term.
The Government also has to factor in a cost of €130 million of deferred income tax assets. The conversion is made on the back of a regime created in 2014 by the PSD/CDS-PP government that gave the banks an assurance that should accumulated deferred income tax assets (resulting from the difference between costs from impairments or provisions and those recognised for tax purposes), can be converted into tax credits or the money can be returned at any time in the future, without a time limit.