The European Commission (EC) approved the multibillion-euro state resolution plan of the cash strapped Portuguese lender Banco Espirito Santo (BES).

As per the resolution strategy, which was projected by Banco De Portugal – the central bank of the Portuguese Republic, the €4.9bn rescue plan comprises splitting of BES into ‘bad’ and ‘good’ banks, while protecting depositors and other clients.

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The "good bank", which will be named Novo Banco, will be offered a loan amounting €4.9bn ($6.6bn) from remaining Portugal’s bailout fund. Comprising Banco Espirito’s core business, Novo Banco will accept deposits and lend to home-buyers and firms.

All toxic loans would be transferred to the bad bank that is owned by all BES shareholders and subordinated creditors.

The capital will be provided by Portugal’s Resolution Fund through a €4.4bn loan from the Portuguese State. The loan is expected to be primarily reimbursed by the proceeds of the sale of assets of the Bridge Bank.

Speaking at a news conference in Lisbon, Portugal central bank governor Carlos Cosa said: "The plan carries no risk to public finances or taxpayers.

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"There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system."

Approving the resolution plan, EC said: "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 full contribution of shareholders and of subordinated debt holders to the losses of BES will be ensured in accordance with the burden sharing rules set out in the commission’s 2013 Banking Communication."