March 21, 2017 / 2:31 PM / 5 months ago

UPDATE 1-Portugal extends loan maturity to bank fund as Novo Banco sale looms

(Adds quotes, details, bank shares rise)

By Andrei Khalip

LISBON, March 21 (Reuters) - Portugal extended the maturities on state loans to its bank resolution fund by nearly three decades to 2046 to avoid imposing extra costs on a fragile banking sector as the state looks set to sell rescued bank Novo Banco at a loss to be borne by banks.

The extensions, from December 2017 and December 2020, on over 4 billion euros ($4.3 billion) of loans will ensure that banks keep paying what they currently pay in fund contributions, without any increases, the finance ministry said in a statement.

Portugal injected 4.9 billion euros into Novo Banco in 2014 via the bank resolution fund, 3.9 billion of that sum being state loans. In late 2015, the state had to rescue a smaller bank, adding 350 million in loans to the fund.

The fund is the responsibility of all banks operating in Portugal, and has to foot the bill for any difference between the rescue funds and the selling price of Novo Banco. The state has to offload the lender by an August deadline agreed with Brussels.

The decision comes as the state is in the final stages of negotiating to sell rescued bank Novo Banco to U.S. fund Lone Star, which has offered to inject up to 1 billion euros into the bank in return for a 75 percent stake, but with little or no money to be paid to the state.

The first attempt to sell Novo Banco failed in 2015 as bids came in far below the rescue amount, stirring investor concerns about the already flagging banking sector's contributions to the fund. But the government last year promised to change the terms on the loans and has now delivered on its promise.

"The revision... allows to reduce uncertainty about banks' annual payments (to the fund) in the future regardless of contingencies that the resolution fund may have to bear," the finance ministry said, adding that the measure had the green light from the European Commission.

Shares in Portugal's largest listed bank Millennium bcp jumped 4 percent after the announcement. ($1 = 0.9247 euros) (Reporting By Andrei Khalip; Editing by Axel Bugge and Keith Weir)

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