September 28, 2016 / 4:40 PM / 3 years ago

Portugal changes terms of loan to bank resolution fund

LISBON, Sept 28 (Reuters) - Portugal’s finance ministry said on Wednesday it has changed the terms of the state’s loans to the bank resolution fund, including extending maturities, helping the country’s banks avoid having to make extraordinary payments into the fund.

The fund, which received 3.9 billion euros from the government for the 4.9-billion-euro rescue of indebted Banco Espirito Santo (BES) in 2014, is formally owned by Portugal’s banks which pay interest on the loan.

“The revision of the terms of the contract (on the loans) is backed by the European Commission and reduces uncertainty over the yearly responsibilities of the banks in the future, independently of the contingencies that may arise for the fund,” the ministry said in a statement.

A new bank, Novo Banco, was carved out of BES and took over the old bank’s operations. But Novo Banco has not yet been sold as hoped, meaning that the state has not been able to recover its loans.

Failure to sell Novo Banco has hung over Portugal’s banking sector because banks would face rising costs over time. Banks would have to fill any possible shortfall in the sales price of Novo Banco if it does not reach 3.9 billion euros.

“The revision of the conditions of the state loan to the resolution fund is another measure aimed at ensuring financial stability and reinforcing the capitalization of Portuguese banks,” the ministry said.

Without giving details of the new terms of the loans, the agreement will extend the maturities of the loan to the resolution fund, allowing banks to continue paying what they currently pay, the ministry said.

A new rate will be charged on the loans in line with the interest rate the government currently pays on its bonds, it added.

Reporting By Axel Bugge, editing by Daniel Alvarenga

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