Government says State Budget has no extra cash for Novo Banco this year

 In Banks, Business, Diplomacy, News

Portugal’s Secretary of State for Finances, Ricardo Mourinho Félix says that no additional emergency funding has been earmarked for Novo Banco in the Supplementary Budget.

It means that the Government will not inject more money, other than that already stipulated, to shore up the bank’s capital ratios which have deteriorated over the past four months because of Covid-19.

“No money is foreseen for an additional injection into Novo Banco for 2020 in the Supplementary Budget,” says Mourinho Felix in agreement with what has already been stated by the outgoing Minister of Finance, Mário Centeno.

The issue has arisen at a time when Covid-19 has reduced Novo Banco capital ratios close to the minimum demanded by the Resolution Fund.

“There has been a deterioration in the economy and therefore it is normal that there should be a deterioration in ratios” said Mourinho Felix in a press conference after presenting the Supplementary Budget.

He added that up until 2019 Novo Banco had a number of ratios that required an injection from the Resolution Fund. “From 2020 these ratios have been reduced.”

Novo Banco has a ratio of CET1 of 12.3% by the end of March compared with 13.5% registered at the end of last year.

This deterioration was justified by the bank on a reduction in own capital aggravated by the effects of the current Covid-19 pandemic at a time in which its CET1 ratio continued to be protected with this level set at 12% from January 2020,” states the bank when presenting its results for the first quarter of the year.

And while this ratio is close to the “safety net” — 12% — a new injection of capital from the Resolution Fund will not be necessary.

The amount asked from the Fund regarding 2020 accounts will have to take into account losses incurred to assets protected by the mechanism, as well as regulatory demands in terms of capital ratios and only at the end of the financial year.

Novo Banco has already applied for close to €2.9Bn from the fund from a total of €3.89Bn available.

Novo Banco is feeling the effects of the pandemic on its accounts and presented losses of €180 million for Q1 of 2020.