Novo Banco gets €1Bn cash injection

Novo Banco has received a cash injection of just over €1Bn from the Resolution Fund to support the bank’s cash-flow while the Portuguese State and US fund Lone Star decide what to do with the bank.

Authorisation to transfer the cash to the Resolution Fund which was set up to capitalise the bank formed from Banco Espírito Santo which collapsed in 2014, was given on Wednesday last week.
Novo Banco, despite being well run and operating a surplus in its own right from activities in 2019 is still saddled with toxic assets and non-performing loans inherited from BES which means it carries losses of €1Bn.
The money for Novo Banco from the contingency capital mechanism had already been earmarked for the bank which is likely to be sold over the next two years.
The cash was supposed to be transferred in February, however, because an audit was being carried out, the Government decided that the money would only be transferred after the audit had been completed.
The Prime Minister, António Costa said in parliament during his fortnightly question time debate had said that the money would only be made available after the completion of the audit. However, the money had already been made available.
The bank had already received an €850 million loan from the Government which. Was transferred from the Portuguese treasury to the Resolution Fund in the form of a loan which would then be later transferred to Novo Banco with other funds. The total would be €1.037Bn.
Last year (despite the toxic assets) had been good year for Novo Banco with a significant increase in the performance of recurrent business.
It grew across all lines of business and significantly increased its profitability while at the same time clearing its balance sheet of bad legacy assets of €6.2Bn and NPLs of €3.3Bn
Corporate loans were up 3.1%,growth of recurrent loans was up 5.6%, home loans were up 8.3% while recurrent net income stood at €177.6 million and recurrent commercial banking income grew to €811.9Bn.
In other words, if it weren’t for the legacy of bad debts inherited from Banco Espírito Santo, Novo Banco would be in a sustainable position.