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Lisbon - The European Union approved Monday a plan to bail out Portugal's ailing Banco Espirito Santo (BES), with the rescue expected to amount to €4.9bn.
"The adoption of this resolution measure is adequate to restore confidence in financial stability and to ensure the continuity of services and avoid potential adverse systemic effects," the European Commission, the EU's executive, said in a statement.
"A disorderly resolution of BES could create a serious disturbance in the Portuguese economy," it added.
The move comes two and a half months after Portugal exited a national bailout programme financed by the eurozone and the International Montary Fund (IMF). BES is Portugal's third-largest banking group.
On Wednesday, the BES reported a record loss of €3.57bn for the first six months of 2014. Last week alone, the share price dropped from 0.45 to 0.12 euro cents.
A resolution fund set up by Portuguese banks as part of the 2012 national bailout will provide the €4.9bn cash injection, the country's central bank governor, Carlos Costa, said late on Sunday.
The bank's bad loans will be off-loaded into a bad bank while the healthy assets will be put into a good bank.
Costa insisted that neither the state nor the depositors would be affected by the crisis.
The shareholders will bear most of the costs, including French bank Credit Agricole (15%), which expects heavy losses.
"They will have to bear the responsibility for the remaining risks," said Costa.
The main shareholder, Espirito Santo Financial Group, which held 20% of the capital, filed for bankruptcy and was barred from voting by the central bank on Thursday.
Under pressure from the central bank, Vitor Bento has been appointed successor to Ricardo Espirito Santo Salgado, who has been head of the bank for 22 years. The 70-year-old was released on bail of €3m after being arrested for money laundering last month.
