The European Commission said on Friday that it has opened an in-depth investigation to assess whether state aid granted by Portugal to Banco Internacional do Funchal S.A (Banif) was compatible with EU state aid rules.

In particular, the European Commission said the final restructuring plan for Banif “should ensure that the bank becomes viable long-term whilst limiting distortions of competition brought about by the state support”.

The launch of an in-depth investigation gives interested third parties an opportunity to submit comments on the measures under assessment and increases legal certainty for the aid beneficiary, the Commission said, adding that it did not prejudge the outcome of the investigation. 

In January 2013, the Commission temporarily approved state support of €1.1 billion to enable Banif to comply with capital requirements imposed by the Portuguese banking regulator. A final decision on the compatibility of the support measures requires the Portuguese authorities to propose – and the Commission to approve – adequate restructuring measures for the bank.

A restructuring plan for Banif, submitted by Portugal, has been amended several times – most recently in October 2014. The Commission said it is assessing the proposed measures under the EU rules on state aid for the restructuring of banks during the crisis.

At this stage, the Commission said it had concerns as to whether the measures proposed complied with the requirements of these rules, which aim to restore the long-term viability of the bank and ensure that the use of taxpayer money is limited to the minimum necessary to achieve this result. They also require that the bank and its owners contribute sufficiently to the cost of the restructuring and that distortions of competition brought about by the subsidies are limited.

The Commission will now investigate further to see if its concerns are justified, taking into account any views submitted by stakeholders, and will work together with the Portuguese authorities to ensure compliance with EU state aid rules.

Majority stake in Banif Malta being sold

In May 2014, the Banif Financial Group said it was in the process of selling its majority stake in Banif Malta plc, in line with the conditions dictated by an EU bail-out agreement signed last year with Portugal.

This state aid agreement obliges the group to sell all its overseas investments, not only in Malta but in other countries, including Brazil.

At the time, bank CEO Silva Pinto stressed the fact that the sale of shares would not have any impact on the bank’s operations, its management structure, the staff or customers’ savings, adding that their intention was for the bank to grow further.

In February 2015, press reports named UK investment manager Omada Capital as a potential buyer and it was rumoured that the sale price was of €25 million. It had been reported that the concerned parties were awaiting clearance from local and EU regulators.

Last month, Banif Malta registered profit before tax of €1.4 million for the year ended 31 December 2014 – a five-fold increase on the previous year. The bank continued to register growth in its lending and deposit portfolio and its main income streams, while total assets increased by €22.8 million to reach €619 million.

At the time, Banif said: “It is expected that 2015 will see the entry of a new shareholder in the bank. This will enable the bank to pursue new areas of business and growth.”

Banif is currently the eighth-largest commercial bank in Portugal, when measured by book asset value, with its main regional presence in the Azores and Madeira. It is listed on the Lisbon Stock Exchange and at the end of 2014 it held total assets amounting to €13.1 billion.

In January 2013, Banif obtained a €1.1 billion state recapitalisation in order to be able to comply with minimum regulatory capital requirements. Portugal subscribed to shares worth €700 million issued by Banif and hybrid securities amounting to €400 million.