BES' chief executive, Ricardo Espirito Santo Salgado, said his bank was in a strong position to ride out the debt crisis and would only need to seek funding from the bailout credit line in the case of a "catastrophe". "Unless a catastrophe takes place, I see no reason to turn to the state for capital," the chief executive of Portugal's largest listed bank in terms of market capitalization told Reuters. "We will seek to broaden the shareholder base and the traditional shareholders of the group are ready to contribute to reinforce the banks capitalization, if necessary," he said. Portugal's banks are all suffering from the euro zone debt crisis, having been shut out of funding markets for more than a year, even before the country sought a 78-billion-euro bailout in May from the European Union and IMF. Portugal has entered a deep recession as the government adopts tough austerity measures to meet budget deficit goals under the bailout. The bailout included a 12-billion-euro credit line for banks if necessary and the country's lenders were already obliged to post a core Tier 1 capital ratio of 9 percent this year and 10 percent next year. Tougher capital requirements adopted last week by European leaders will make it more challenging for Portugal's banks to hit the targets. BES said last week it needs to raise a total of 687 million euros to meet the new capital requirements. But it has already launched an offer to swap debt for equity earlier this month, through which it hopes to raise 791 million euros. "The BES group at this stage is going through a conversion of debt to equity because it believes it is offering a good opportunity of share appreciation to investors," Salgado said. He said his bank offers good value for shareholders, pointing out that BES' price-to-book value is currently 0.3 times, compared with an average of 1.57 times over the last 10 years. He said the average of analysts' target price for BES' shares suggest upside of more than 100 percent. The shares have lost almost half of their value since the start of the year, underperforming the Dow Jones Stoxx Europe banking index, down 28 percent. At the end of 2010, the Espirito Santo family and France's Credit Agricole held 40 percent of BES through a holding company, with Credit Agricole also holding a direct 10.8 percent stake. Brazil's Bradesco held 6 percent. "We expect shareholders, the stakeholders, to participate in the capital rising," Salgado said. If the debt-to-equity swap works, the bank is already aiming to have a core Tier 1 capital ratio of 9.7 percent, up from 8.2 percent at the end of June. The CEO said he expected shareholders to share the view that the absolute priority currently is to boost capital, which will lead to a "very big containment of dividends." "As such, I believe shareholders are prepared for the bank's profits staying in the bank and being reinvested," he said. Salgado said BES came out well from last week's decision by European leaders to recapitalise banks because it holds little sovereign debt. He said BES had concluded early this year that peripheral euro zone countries would face a credit crunch, prompting his bank to sell debt holdings. Turning to the euro zone debt crisis, he said that after the summit of European leaders last week there was the potential for the rebuilding of a "climate of confidence in Europe." "With the decisions that were taken in Europe, it seems to me that we are close to a level where new confidence can be created, I sincerely believe that is possible," he said. Still, Salgado said that the credit crunch that has hit parts of Europe is still not resolved, with credit contracting sharply in countries like Portugal and Spain. "But, it is necessary that there are instruments to support greater liquidity in the European sovereign debt market and in the private debt market," he said, adding that he did not think it was possible to have quantitative easing in Europe like in the United States. Portuguese banks have relied on the European Central Bank for liquidity over the past year.