LISBON (Reuters) - Portugal's political crisis must be resolved swiftly so a strong government and the country's credibility can be restored, allowing its banks to raise financing in bond markets, the head of the Portuguese Banking Association (APB) said on Tuesday.
A rift in Portugal's government broke out last week after the resignation of the Foreign Minister Paulo Portas, who is also the leader of junior partner in the ruling coalition, threatening to derail Lisbon's progress under a bailout.
"If the government that emerges from this crisis is strong, in its structure and makeup, the damage caused by the crisis will be lessened...it must be resolved as quickly as possible," APB chief Fernando Faria de Oliveira told Reuters in an interview, adding that a snap election is the riskiest scenario.
Faria de Oliveira said the new government will have to be determined to complete Portugal's adjustment program under the 78-billion-euro ($100 billion) bailout, but now with a focus on economic growth and without damaging budget goals or financial stability.
Portuguese bonds sold off sharply last week on fears Lisbon would be unable to exit its bailout as planned in June 2014. They have since settled as the government's immediate collapse has been averted.
Analysts and traders said on Friday that Portuguese banks are expected to borrow more from the ECB in coming months as the crisis freezes them out of international markets again, rattling their chances of recovery.
The surge in borrowing costs due to a rift within the country's ruling coalition has raised funding costs for Caixa Geral, Millennium BCP
Faria de Oliveira said, however, that a resolution to the crisis would allow the country's banks to return to bond markets as planned.
"The banks are now well capitalized, with Core Tier 1 (ratios), on average, at 11.5 percent, comfortable in terms of liquidity and with positive trends on deposits," he said.
"So I hope, that the political crisis, whose resolution seems imminent, does not damage much the access to the banks' financing in the bond markets when they feel it is opportune to issue debt," he added.
State-owned Caixa Geral and BES returned to international capital markets last year but Millennium BCP and Banco BPI have yet to join them.
Millennium BCP told Reuters it had no plans to tap the markets this year, citing a comfortable liquidity position and no further refinancing needs in 2013. ($1 = 0.7773 euros)
(Writing by Shrikesh Laxmidas, editing by Axel Bugge; editing by Ron Askew)
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