PORTUGAL IS TO spend around €4.9 billion to bail out its largest bank.

The move to save Banco Espirito Santo (BES) comes after a week of frantic negotiations aimed at avoiding a run on the bank, which is the main part of the country’s third-largest banking group.

BES will be split into two entities, with its toxic assets isolated in a “bad bank” and its healthier assets regrouped in a new bank called simply Novo Banco. The bank recorded a €3.57 billion loss last week.

In stepping in, the Lisbon government is seeking to avoid contamination throughout its fragile economy and into the wider eurozone. It comes not long after the country exited its own bailout programme.

“There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system,” Bank of Portugal governor Carlos Costa said.

The European Commission in Brussels assured that Portugal’s intervention “is adequate to restore confidence in financial stability and to ensure the continuity of services and avoid potential adverse systemic effects”.

The cash injection from the state is designed to stop savers pulling any more money out of the bank, and to assure them their money is safe, analysts said.

AFP contributed reporting