Centeno: Novo Banco agreement was "the most efficient" in Portugal and perhaps in Europe

The mechanism that allowed the Resolution Fund (FdR) injections into Novo Banco was "the most efficient capitalization instrument that existed in all banking interventions, not only in Portugal, but probably in Europe" , argues the governor of the Bank of Portugal (BdP).

"A huge success", described Mário Centeno in the Budget and Finance Committee, where he was questioned by deputies about the role of the Contingent Capital Agreement (CCA).

"A resolution is always a moment of great complexity", stated Mário Centeno, for whom alternative solutions would have "an immeasurably higher cost" .

Centeno also highlighted that from now on, the banks' contributions to the Resolution Fund will be used to help the entity led by Máximo dos Santos pay off the loans granted by the State over the last few years to finance the injections. And they will have a positive impact on public accounts, he assured. "They will be used to pay off these loans. From the point of view of public accounts, there is a positive contribution of around 250 million euros from these contributions to the budget balance", he said.

The head of the central bank also stressed that without the CCA "the sale of Novo Banco would not have taken place". The agreement provided that the bank could make requests for a capital injection whenever the capital ratio fell below 12% due to the loss of value in a set of assets inherited from Banco Espírito Santo. It was through this means that the Resolution Fund injected 3.4 billion euros into the financial institution – still below the ceiling of 3.9 billion euros.

At the end of last year, the State, Lone Star and the Resolution Fund reached an agreement to terminate the CCA early. This outcome was essential for Novo Banco to be able to enter a new phase, with an Initial Public Offering or an outright sale. Before this operation, it must distribute 1.3 billion euros in dividends to current shareholders. The State could receive around 325 million euros.