Greece’s four main banks have until Friday to outline how they will raise €14.4 billion in fresh capital to meet European Central Bank stress tests.
The results of the ECB’s health check of Greek banks, published over the weekend, show the top four lenders are short of €14.4 billion in capital under the supervisors’ so-called “adverse scenario”, where lenders must be able to withstand a worsening of economic and financial conditions.
Under the adverse scenario, the Greek economy is forecast to shrink by 6 per cent by the end of 2017. Under the standard scenario of what is known officially as the “comprehensive assessment”, the capital shortfall is €4.4 billion.
Piraeus Bank needs €4.9 billion in fresh capital, the National Bank of Greece €4.6 billion, Alpha Bank €2.7 billion and Eurobank €2.1 billion.
The banks have until November 6th to say how they plan to plug the capital hole. They have already moved to pre-emptively boost their capital in advance of results of the tests, which are a key part of the €86 billion Greek bailout that euro area leaders agreed in July. That bailout deal earmarked as much as €25 billion in support for the banks.
Investors are concerned that the Greek government will use the opportunity of the recapitalisation to cement its control of the banks.
Wilbur Ross, the US investor with a large stake in Eurobank, said: "In view of the volatility of politics in Greece, investors will not be comfortable with committing new equity capital to banks that are effectively nationalised."
The health check also showed that the largest Greek banks have €107 billion in loans that are non-performing – where a borrower has not made a payment for more 90 days or more. Under the deal agreed between Athens and its creditors this summer, the Greek government has until end of November to take steps to speed up the legal process for resolving these non-performing loans.
Euclid Tsakalotos, the Greek finance minister, said he was satisfied with the stress tests. "I am more optimistic today than I was a month ago," he said.
Additional capital
Greek officials have said that any additional capital needs that cannot be raised from private investors will be covered by Greece’s bank bailout fund, the Hellenic Financial Stability Fund, which will buy a mix of new shares and cocos – bonds that convert into ordinary shares when a bank’s capital falls below a certain level – issued by the Greek banks. – (Copyright
The Financial Times
Limited 2015
)
