LISBON, July 2 The solvency of Portugal's Banco Espirito Santo (BES) is solid and the Bank of Portugal has taken measures to avoid the risk of contagion from the non-financial arm of the Espirito Santo Group to BES, a spokesman said on Wednesday.
Portugal's largest private bank by assets, Banco Espirito Santo has seen sharp declines in its shares on growing concerns about its exposure to a troubled holding company of the Espirito Santo banking family - the bank's largest shareholder.
"The solvency situation of BES is solid, and it has been significantly reinforced with the recent capital increase," a Bank of Portugal spokesman told Reuters.
"The Bank of Portugal has adopted a series of actions, aimed at specific decisions for ESFG and BES, to avoid risks of contagion for the bank coming from the non-financial arm of the Espirito Santo Group," the spokesman said.
ESFG, or Espirito Santo Financial Group, is the holding company that holds the Espirito Santo family's 25 percent stake in BES.
The spokesman did not specify what actions had been taken.
But he said that even if the Espirito Santo family companies were not subject to financial regulation, operations between a supervised bank and non-financial entities had to meet conditions that limit risks.
"Meeting these limits and the impact of operations on the asset and prudential situation of credit institutions are followed by the Bank of Portugal," the spokesman said.
"These operations are equally evaluated from the point of view of credit risk and reputational risk," he said, adding that the Bank of Portugal could adopt specific measures to reduce the risks.
The concerns surrounding BES first surfaced when it warned of "reputational risks" to it due to the fact that it had sold debt issued by a Espirito Santo family company with financial irregularities to its own retail clients.
This week, BES said that it has a financial exposure of 200 million euros to Rioforte, another Espirito Santo holding company, and 720 million euros to Espirito Santo Financial Group.
BES raised 1.045 billion euros in a cash call in June. (Reporting by Sergio Goncalves; writing by Axel Bugge; editing by Andrew Roche)