The Portuguese government announced on Wednesday that it had secured the provisional go ahead to recapitalize the country’s largest bank by assets, Caixa Geral de Depositos with 5.1 billion euros ($5.7 billion).
According to a statement the government will give 2.7 billion euros to CGD, while converting 960 million euros’ worth of government-held CGD bonds into CGD shares while ParCaixa which is also state owned will transfer ownership of its shares worth 500 million euros to CGD. Through a debt issue the bank with raise and additional 1 billion euros.
Following the financial crisis in 2008, the Portuguese government has already injected 10 billion euros into four separate banks which aren’t state-owned. Problems in the financial sector of Portugal have been blamed on poor lending policies and unpaid loans which are still to the current date weighing on the sectors revival. The debt-heavy country also required a 78 billion bailout in 2011 in the midst of the eurozone crisis.
The plans for CGD are not to be considered as state aid by the European Commission (EC) as action is being take “in line with market conditions.” This means that the bailout will not be outlined as government debt and will not make the budget deficit, which it is trying to improve, worse.
According to the statement:
“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 European Central Bank has estimated that the CGD has over 100 billion euros in assets, and employs more than 8,000 employees in 700 branches across the nation.
CGD is thought to hold over 2 billion euros in bad debt. Opponents of the bank have said that is has been used by political parties to reward supporters with jobs and financing.
Through changes in lending risks, the use of cost cutting schemes and improved efficiencies the government is intending to bring the bank back to profitability.