Banco Espirito Santo
Banco Espirito Santo is Portugal's biggest bank by assetsReuters

Portugal's troubled lender Banco Espírito Santo will be split into two as part of its multi-billion euro rescue plan unveiled by the country's central bank.

Media reports said the government will pump in €4.9bn ($6.6bn, £3.9bn) into the bank, which was hurt by the financial crisis in Europe and its exposure to loss-making companies headed by its founding Espirito Santo family.

The rescue plan was unveiled after discussions between Portuguese and European Union officials during the weekend.

Under the plan, Banco Espirito Santo will be split into a "good bank", under the name Novo Banco, and a "bad bank", which will house BES's exposures to loss-making businesses.

The bank's junior bondholders and shareholders, including the Espirito Santo family, which has a 20% stake, and French bank Credit Agricole which owns 14.6%, will bear the bad bank's losses.

Novo Banco will be recapitalised with a €4.9bn investment from a special bank resolution fund created in 2012. The Portuguese state will lend the fund €4.4bn for the purpose.

This funding is temporary stated the Bank of Portugal: Novo Banco is expected to be sold to private investors in the future to reimburse the government.

Banco Espírito Santo is the largest bank in Portugal with assets totalling €76.6bn at the end of March.

Even if the bank is not that big enough to rank among the eurozone's largest banks, the rescue plan would be costly for Portugal, which has recently emerged from an international bailout.

The European Commission has approved the rescue plan, adding it is in compliance with the region's new rules to minimise cost to taxpayers and prevent bottlenecks to the financial system.