April 15, 2016 / 10:25 AM / 4 years ago

UPDATE 1-Portugal PM wants solution for banks' non-performing loans

(Updates with more details, quotes)

LISBON, April 15 (Reuters) - Portugal’s prime minister said on Friday a solution had to be found for the banking system’s non-performing loans and his government intended to talk to regulators about how to do it.

“It would be useful to have a vehicle to effectively resolve this situation” of non-performing loans, Prime Minister Antonio Costa told parliament.

He added: “I do not defend any injection of public money into banks ... the problem cannot be resolved with the use of taxpayers’ money.”

Analysts have said Portuguese banks have been unable to fully take advantage of record low European interest rates because of large portfolios of bad loans left over from the country’s debt crisis.

Debate on the non-performing loans of Portugal’s banking system gathered steam this week after Italy decided to set up a 5-billion-euro fund to shore up its weaker banks.

But Costa said the solution in Portugal would not be like in Italy, or in Spain which received a bailout for banks during the euro zone debt crisis.

“I don’t think it would be an Italian-style or a Spanish-style solution. I hope we will get a good, Portuguese-style solution,” he said, without providing further details.

The challenge for Portugal is how to finance a fund, or ‘bad bank’, to take on the banking sector’s non-performing loans.

The Portuguese Banking Association said this week it would support a solution, adding it proposed the creation of a vehicle to take on bad loans during the debt crisis in 2011 but the proposal was rejected at the time.

Fragilities in Portugal’s banking sector were highlighted at the end of last year when the state had to rescue Madeira-based lender Banif in a 2.2-billion-euro operation - the country’s second bank rescue in as many years. (Reporting by Axel Bugge and Sergio Goncalves; Editing by Shrikesh Laxmidas and Mark Potter)

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