Portugal banks' ECB borrowing jumps in April

City A.M. Reporter
Borrowing by Portuguese banks from the European Central Bank jumped nearly 23 per cent in April compared with March, as the country's bailout undermined its banks' ability to raise funds in the market.

The Bank of Portugal has said the cumulative borrowing reached €48bn (£42bn) in April, close to a record of €49bn set last August.

Investor concerns about Portugal's public finances and heavy debt burden have squeezed its banks out of the interbank market for loans and left them dependent on the ECB's non-standard liquidity measures.

Portugal's soaring borrowing costs amid the sovereign debt crisis led it to request an international bailout on April 7 following Greece and Ireland. The terms of the €78bn European Union and International Monetary Fund rescue plan were announced last week.

"The rise doesn't come as a major surprise. With the bailout nearing, the markets became increasingly closed for the banks, and with debt to repay they had to keep resorting to the ECB," said Andre Rodrigues, a banking analyst at Caixa BI in Lisbon.

In an unprecedented move, Portugal's leading banks last month threatened to stop buying government debt if Portugal did not request a lifeline - an ultimatum which probably tipped prime minister Jose Socrates into seeking European aid.

The bailout includes €12bn for banks to recapitalise, although the head of Portugal's banking association said last week the financial institutions were unlikely to use the line.

The package also includes up to €35bn for the state to guarantee debt issuance by banks.