The European Commission has approved under EU State aid rules a prolongation of Portuguese State guarantees on bonds in the nominal amount of €3.5 billion, issued by Portuguese bank Novo Banco.

In particular, the Commission found that the prolongation should contribute to ensuring the maintenance of adequate liquidity for Novo Banco. It also welcomes that Portuguese authorities have committed to additional restructuring measures to improve the bank’s viability and efficiency. Both elements should help facilitate the sale process of Novo Banco, which Portugal intends to re-launch in January next year.

Novo Banco is the bridge bank that was created in August 2014 as a result of the resolution of Banco Espírito Santo SA (BES). In this context, the State guaranteed bonds issued by BES in 2011 and 2012 under the guarantee scheme in Portugal for financial institutions were transferred to Novo Banco. 

The Portuguese authorities have further committed to additional restructuring measures for Novo Banco, in particular a deepening of the bank's operational restructuring as well as of the bank’s ongoing efforts to focus on its core activities and decrease gradually its activity in business units and geographies which are considered non-core. These measures will improve the bank’s efficiency and its viability, and are taken to address distortions of competition as a result of the aid.

In this context, the Commission welcomes the intention of the Portuguese authorities to re-launch the sale process of Novo Banco in January 2016. It granted an extension of the original sale deadline of August 2016, which should contribute to its successful conclusion.

Background

EU State aid rules (the “2013 Banking Communication”) and the EU Bank Recovery and Resolution Directive enable the State to provide liquidity support to solvent banks in the form of a State guarantee on newly issued liabilities such as bonds, subject to certain conditions. In particular, such measures must be of a temporary nature and proportionate, and must not be used to offset losses that the bank has incurred or is likely to incur in the near future.

On 3 August 2014, the Commission approved the resolution of Banco Espírito Santo SA and the immediate creation of a bridge bank, Novo Banco SA, which received a capitalisation of €4.9 billion and is fully-owned by the Portuguese Resolution Fund. According to the Commission’s August 2014 decision, Novo Banco should be sold in full or in parts within two years of the decision date, i.e. August 2016, while unsold parts and the remainder of BES should be wound down. The Commission has now agreed to extend this deadline. The new deadline is kept confidential in order to protect the effectiveness of the sale process.

Please also see the Commission's Policy Brief "State aid to European banks: returning to viability" on the application of EU State aid rules in the banking sector.

The non-confidential version of this decision will be made available under the case number SA.xxxxx in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.