UTAO did the math. Government grants the Portuguese banking a 630 million euros’ pardon
The State's loan to the Resolution Fund was updated and assessed at a negative net value of 630 millions, the Parliament's experts estimate. In the original conditions, that amount was almost zero.
The Portuguese Technical Unit for Budget Support (UTAO) estimates that the revision of the conditions of the Portuguese States’ loan to the Resolution Fund (which allowed banks to have more time to pay their loan to the Fund) is the equivalent to a 630 million euros’ pardon, when compared to the initial conditions. These calculations are inscribed in a report given to Finance and Budget commission deputies.
The Resolution Fund has a financial plan that allows the Portuguese banking to reduce the cost of the loan to a little more than half (347 million euros). However, this plan means the banking’s extraordinary contribution will become definitive, experts explain in the document ECO also accessed.
According to the Parliament experts’ math, if banks had returned the amount of the loan according to the first conditions (3,900 million euros), the result of the operation would generate a “positive net updated amount, although not very expressive” , is stated in the report. These were the first conditions of the loan repayment:
- the loan would be reimbursed in August 2016;
- interests would be payed every three months;
- interests would be based on the State’s financing cost withing the Adjustment Programme — in the first term of the loan, interest was 2.962%.
If these conditions had been met — and assuming banks could comply with them –, the operation would have had a net updated value of 19.5 million euros. The Government believed the Portuguese banking could not reimburse the loan, and so it made its first revision of the contract conditions, on July 2016:
- the loan’s maturity would be extended to December 31, 2017;
- interests would mature on August 4 and December 31 of 2017;
- the interest rate was revised to 1.25%.
UTAO did the math taking these new conditions into consideration and concluded the net updated value went from slightly positive to slightly negative: “62 million euros”. Yet, these conditions were revised for the second time. The maturity was extended to December 31 of 2046 and the yearly nominal fixed interest rate increased to 2%, between November 2016 and December 2021.
Taking these new conditions into consideration, the report states “the contract presents a negative net updated value of 633.4 million euros”. Here, it is assumed the loan will go through until the end of the contract and it is estimated that there is an interests flow of 1,771.2 million euros between August 4, 2014, and December 31, 2046. To this amount, an additional 1,495.4 million euros can be added from the updated capital amount from August 4, in a total of (capital and interests) 3,266.6 million euros. This is the amount that can be compared with the 3,900 million euros which were borrowed and, therefore, represents an interests pardon of around 630 million euros.
