Government ‘will try to avoid more loans’ to be used for Novo Banco

Portugal’s government on Friday committed to try to avoid making any more public loans this year to the banking sector Resolution Fund to provide further finance to Novo Banco, the successor institution to collapsed Banco Espírito Santo, while stressing the need for a solution that could avoid systemic risks to the country’s financial system.

The position was conveyed at a news conference by the secretary of state for parliamentary affairs, Duarte Cordeiro, in response to the announcement by the Left Block (BE) of another of the “red lines” it has laid down in negotiations on next year’s state budget.

The Socialist government lacks a majority in parliament and is expected to have to rely on the BE, and possibly also the Communist Party, for the budget’s approval.

“We have made a commitment to try not to consider any public state loans to the Resolution Fund in 2021,” said Cordeiro, stressing that the government could not go any further on this point.

The BE, for its part, in addition to rejecting any further direct loans to the Resolution Fund to finance Novo Banco, has also demanded that the fund itself – regardless of its source of funding – not transfer any further amounts to it in the current circumstances, citing what it called the “ruinous management” of the bank.

The secretary of state stressed that the government was going to the limit of its powers and warned of systemic risks in the financial system from a situation of uncertainty in Novo Banco.