A deal to recapitalise state bank Caixa Geral de Depósitos (CGD) to the tune of €5.1 billion means amendments will have to be made to Portugal’s budget.
The government has been given approval from European authorities to move forward with the recap plan, which will cost taxpayers around €2.7 billion.
Portugal will also convert €960 million-worth of government-held CGD bonds into CGD shares while state-owned holding company ParCaixa will transfer shares worth €500 million to the bank. CGD will also raise €1 billion through a debt issue.
In a press conference yesterday, Finance Minister Mário Centeno said the €2.7 billion won’t count as state aid.
As Reuters points out, “the government has been negotiating with Brussels for months so that any injection is not considered state aid and does not count towards the budget deficit, which Lisbon has promised to cut to 2.5% of GDP in 2016 from last year’s 4.5%”.
A spokeswoman for the European Commission confirmed that the planned recapitalisation would have “sufficiently high expected returns for the state” to mean it would not be considered state aid.
However, Centeno admitted that amendments had to be made to Portugal’s budget due to the CGD recap plan.
“Financing this plan will force us to redesign our public debt’s profile, but the State and the economy will benefit from this investment,” he told journalists.
The minister said, however, that he cannot set a deadline for the amendments.
“Our expectations are to complete everything by the end of the year. The work is starting right now,” he said.
In order to further improve the bank’s financial health, the government is also planning to encourage “early retirements” and “mutual resignation agreements” in a bid to lower CGD’s number of employees.
According to Business Insider, “since 2008 Portuguese authorities have already provided some €10 billion 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,” it adds.