Portugal’s largest bank, Caixa Geral de Depósitos (CGD), which holds almost one-third of all deposits in the country, is on the ‘brink of destruction’ following a terrible first quarter of the year, according to an article in Spanish newspaper El Pais.

With the bank thought to need a cash injection of as much as €4bn (3.14bn) to rescue it from serious difficulties, Portugal is rapidly becoming Europe’s next ‘looming economic disaster’, according to the report.

The Portuguese government has already announced that it is ready to approve the recapitalisation of CGD, but this is likely to shake consumer confidence, have an adverse impact on the country’s economy, and threaten to destabilise Portugal’s fragile housing market recovery.

Portugal’s property market is heavily reliant on foreign buyers, as illustrated by recent figures showing that 20% of Portuguese property purchases in the first quarter of this year were made with overseas money.

An upturn in transactions is helping to drive home prices higher across parts of the country, led by gains in the Algarve.