LISBON (Reuters) - Portugal is to pay more than 2.2 billion euros ($2.4 billion) to rescue Madeira-based bank Banif in a deal which involves a sale of the company’s healthy assets to Spain’s Santander for 150 million euros.

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The government-backed bailout of Banif (Banco Internacional do Funchal) comes less than two years after the state paid out 4.9 billion euros to rescue the country’s then second-largest bank Banco Espirito Santo. Porutgal itself emerged from an international bailout only last year.

Banif had been unable to repay 700 million euros provided by the government during Portugal’s economic crisis. The state took a 60.5 percent stake in exchange for the cash and had been trying to sell Banif before new European rules come in next month which would impose losses on debt holders and depositors with more than 100,000 euros in the bank.

Prime Minister Antonio Costa, whose Socialist government took power this month, said the costs of the resolution were “very high for taxpayers”, but this was the only way to safeguard depositors and financial stability.

Finance Minister Mario Centeno said the cash injection would have an impact on this year’s budget deficit equivalent to over 1 percentage point of GDP, but this should not affect the country’s plans to exit the strictures of the EU excessive deficit procedure.

Brussels should not factor in that aid when considering its 3 percent threshold for excessive deficits, he said. The government has previously said it plans to bring the deficit to 3 percent this year from last year’s 7.2 percent.

“This resolution is not a major systemic issue, but it does show how fragile the banking system and the economy still is in Portugal, where bad loans have been rising,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said.

CENTRAL BANKER CRITICIZED

Portugal’s Left Bloc party, which supports the minority Socialist government in parliament, accused the previous center-right government of hiding Banif’s problems to avoid an impact on public accounts on its watch, and demanded the resignation of Bank of Portugal Governor Carlos Costa.

“The Bank of Portugal has once again failed to live up to its responsibilities. We believe that Gov. Carlos Costa does not have the minimum conditions to stay in his position,” Mariana Mortagua, a senior Left Bloc member of parliament. The party wants an investigative committee be set up in parliament.

The Bank of Portugal declined to comment.

The central bank said earlier that the deal had been agreed with European authorities and involved an injection of 2.2 billion euros “to cover future contingencies”. It said it would also protect Banif’s senior debt.

Portugal’s Bank Resolution Fund, to which all financial institutions working in Portugal have to contribute, will provide 489 million euros, while the remaining nearly 1.77 billion euros would come directly from state coffers.

Santander Totta, the Portuguese business of Santander, will take over Banif’s operations, except troubled assets which will be transferred to a special vehicle. The rest of Banif is to be wound down, including equity and subordinated debt.

Banif has a market capitalization of 91 million euros and had deposits of 6 billion euros at the end of September. Its shares were suspended last Thursday pending information about its sale. It has 150 branches across Portugal.

Markets reacted calmly. Portuguese government bond yields were slightly higher in line with European peers in response to a fragmented result in the Spanish national elections on Sunday. Portugal’s banking shares were lower.