Another Portuguese bank needs help, this time for $5.7B

AP News
Posted: Aug 24, 2016 10:26 AM

LISBON, Portugal (AP) — For Portuguese taxpayers fed up with coming to the rescue of troubled banks, there's bad news: another one needs help.

The government said Wednesday it has won provisional approval from European authorities to recapitalize Portugal's biggest bank by assets, state-owned Caixa Geral de Depositos, with 5.1 billion euros ($5.7 billion).

The government will inject 2.7 billion euros into CGD, the Finance Ministry said in a statement. Also, it will convert 960 million euros' worth of government-held CGD bonds into CGD shares while state-owned holding company ParCaixa will transfer shares worth 500 million euros to CGD. The bank will raise a further 1 billion euros through a debt issue.

Since 2008 Portuguese authorities have already provided some 10 billion euros to four other banks, all of them non state-owned. Analysts say poor lending practices and unpaid loans are to blame for the Portuguese banking sector's problems, which are still hampering the financial sector's recovery. Debt-heavy Portugal also needed a 78 billion-euro bailout in 2011 amid the eurozone debt crisis.

The government's help for CGD will not be counted by the European Commission as state aid because it is taking place "in line with market conditions," according to the statement. That means it won't show up under government debt and won't worsen the budget deficit, which the government is striving to reduce.

"The business plan that will be followed will ensure adequate returns for the state as a shareholder in identical conditions to those that would be acceptable to a private investor," the statement said.

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CGD has more than 100 billion euros in assets, according to the European Central Bank. It has more than 8,000 employees and more than 700 branches around the country.

CGD is holding more than 2 billion euros in bad debt. Critics of its performance say it has long been used as a tool by political parties to reward their supporters with jobs and financing.

The government intends to ensure the bank's long-term profitability by reducing credit risks, cutting costs and improving efficiency, the statement said.