LISBON (Reuters) – Portugal’s finance minister said on Friday the state would comply with all its commitments related to Novo Banco after opposition parties blocked a 476 million euro ($567.53 million) capital injection for the lender next year.
Novo Banco, which emerged from the collapse of Banco Espirito Santo (BES) in 2014, is 75% owned by U.S. private equity firm Lone Star and 25% by the state-backed Portuguese Resolution Fund.
Under the contract agreed on its sale to Lone Star in 2017 the Resolution Fund must inject up to 3.9 billion euros if certain losses occurred from the sale of toxic assets inherited from the collapsed BES.
Loss-making Novo Banco has been offloading bad loans, real estate and non-core assets under restructuring commitments agreed with Brussels and the Resolution Fund has already injected almost 3 billion euros into the bank to cover those losses.
In its annual budget for 2021, submitted to parliament on Thursday, the government had proposed that the Resolution Fund inject a further 476 million euros into Novo Banco next year but the proposal was rejected by the centre-right main opposition Social Democrats and hard left lawmakers.
Social Democrat leader Rui Rio, however, told reporters that his party would vote in favour of this new capital injection if a pending audit shows it is fair and correct.
Finance Minister Joao Leao said the state would meet its obligations to the bank.
“Portugal will meet, as it has always done, its commitments assumed regarding Novo Banco,” Leao said in a short statement sent to Reuters without providing further details.
Prime Minister Antonio Costa tweeted later on Thursday that he had called European Central Bank President Christine Lagarde to assure her of Portugal’s “full compliance with the commitments undertaken in the framework of Novo Banco’s sale”.
Opposition parties fear Novo Banco could be benefiting Lone Star by selling it discounted non-performing assets, which inflated Novo Banco’s losses. The bank and Lone Star have denied this.
($1 = 0.8387 euros)
(Reporting by Sergio Goncalves; Editing by Andrei Khalip and Susan Fenton)