March 28, 2018 / 6:31 PM / 9 months ago

Novo Banco posts record loss, remedied by Portugal resolution fund

Portuguese bank Novo Banco's CEO Antonio Ramalho seats at the beginning of a news conference in Lisbon, Portugal March 28, 2018. REUTERS/Pedro Nunes

LISBON (Reuters) - Portugal’s Novo Banco, rescued by the state and acquired last year by U.S. private equity firm Lone Star, reported a record net loss of 1.4 billion euros on Wednesday for 2017 and a fresh capital injection from the country’s bank resolution fund.

The annual loss, up 77 percent from 2016 due to a 50 percent rise in impairments and a drop in net interest income, meant that the unlisted bank needed 791.7 million euros from the resolution fund, which holds a 25 percent stake in the bank.

The fund is the common responsibility of all banks operating in Portugal, and receives state loans to cover any large shortfalls in the banking system.

The injection, under the so-called contingency capital mechanism, is meant to keep solvency ratios at the country’s third-largest bank at adequate levels required by regulators.

Lone Star had already injected 1 billion euros in Novo Banco last year under the terms of the acquisition deal.

The new cash allowed the lender to slightly increase its solvency ratio to 12.8 percent from 12 percent a year ago as it continued to clean up its balance sheet.

The bank that was carved out of the collapse of Banco Espirito Santo in 2014 and rescued by the state to the tune of 5 billion euros, took 2.06 billion euros in impairments and provisions for bad loans, assets, debt, restructuring costs and contingencies, 50 percent higher than a year earlier.

Net interest income - the difference between interest charged on loans and interest paid on deposits - fell 23 percent, but commissions rose 17 percent. Client deposits rose by 2.1 billion euros, or 16 percent, while the loan portfolio was reduced by 2.3 billion euros of 7 percent.

The weight of bad loans in its total loan portfolio fell to 30.5 percent from 33.4 percent. It also slashed operating costs by 7 percent to 549 million euros, mainly by laying off staff and closing branches in Portugal and abroad.

Reporting By Andrei Khalip and Daniel Alvarenga; Editing by Elaine Hardcastle

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