LISBON Portugal's government has been forced to provide state guarantees on 2.8 billion euros in European Investment Bank loans given to struggling Portuguese banks, aiming to shore up EIB-backed financing for the recession-hit economy.
Credit ratings of Portuguese banks have fallen below sovereign ratings, making it increasingly difficult for the EIB to accept their own guarantees as collateral and prodding the bailed out Portuguese state to step in.
Portugal, which is under a 78-billion euro EU/IMF bailout, is grappling with its worst recession since the 1970s.
Finance Minister Vitor Gaspar said Portugal provided a 20-year irrevocable guarantee on an investment portfolio worth 2.8 billion euros.
"That will enable the EIB to cover its 5 billion euro exposure to Portugal and provide the ground for an additional 1 billion euros for new operations," he said.
"It is well-known that the problem of the economy's financing is probably the most important factor holding back growth and jobs creation in Portugal," Gaspar said, adding that EIB's financing was also an important too to combat growing financial market fragmentation in Europe.
Banco BPI CEO Fernando Ulrich, who was present at the ceremony, said the new potential 1 billion euro line should be obtained via agreements between EIB and Portuguese banks, which in their turn will lend the money to small and medium-sized enterprises that comprise the backbone of Portugal's economy.
EIB chief Werner Hoyer said the country faced "enormous challenges in rebalancing its public accounts and reforming a stagnated business environment", but added that he was "confident and convinced that it will succeed on this path".
"EIB is committed to helping Portugal in this challenging economic and financial context," he said.
(Reporting By Sergio Goncalves, writing by Andrei Khalip; editing by Ron Askew)