Greek banks in need of €14B to survive, says ECB

Greece’s troubled banks are in need of 14.4 billion euros of fresh capital to stay on tracks says European Central Bank (ECB)

Photo by: AFP
Photo by: AFP

A man seen at an ATM outside a National Bank branch in Athens on October 31, 2015

Four major Greek banks must find up to 14.4 billion euros ($15.8 billion) to survive potential economic shocks, the European Central Bank said Saturday after they underwent an in-depth financial health check.

The figure was less than anticipated under recapitalisation plans agreed with Greece's partners.

Greece's Alpha Bank, Eurobank, the National Bank of Greece and Piraeus Bank were all submitted to a health check by the ECB known as a "comprehensive assessment".

If the economy takes a turn for the worse, the banks would have a capital shortfall of up to 14.4 billion euros, the test showed.

The health check comprises an asset quality review and a forward-looking stress test aimed at assessing "the specific recapitalisation needs of the individual banks" under Greece's current economic adjustment programme.

"Overall, the stress test identified a capital shortfall across the four participating banks of 4.4 billion euros under the baseline scenario and 14.4 billion euros under the adverse scenario," the ECB said.

Piraeus was the weakest, with an anticipated shortfall of nearly five billion euros in an adverse scenario.

"The four banks will have to submit capital plans explaining how they intend to cover their shortfalls by November 6," it said.

"This will start a recapitalisation process under the economic adjustment programme that must conclude before the end of the year."

Covering the shortfalls by raising capital would "result in the creation of prudential buffers at the four Greek banks, which will improve the resilience of their balance sheets and their capacity to withstand potential adverse macroeconomic shock," the ECB added.

Eurobank noted in a press release that it was ranked "as the Greek bank with the lowest, and fully manageable, capital needs under the... adverse scenario (reflecting) the soundness of the strategy we have been consistently implementing."

Private funds tapped

Piraeus said in a statement Saturday that it took bad loan provisions of 2.121 billion euros in the January-to-September period, down from 3.197 billion euros in the same period last year.

It reported a net loss of 635 million euros in the period, down 61 percent from last year.

Analysts say Piraeus is the most exposed to bad loans because it has been a top lender to small and medium-sized Greek businesses.

Weakened after years of recession, Greece's banks took a further battering earlier this year as the left-wing government of Alexis Tsipras pushed the country to the brink of a euro exit in a standoff with Berlin and Brussels over the terms of Greece's international bailout.

Finally, an 86 billion euro bailout was agreed, with 25 billion euros earmarked for the recapitalisation of the four major banks.

On Friday, the Greek government submitted draft legislation to parliament paving the way for the recapitalisation process to begin on Monday.

Finance Minister Euclid Tsakalotos on Saturday praised the results of the stress tests and said he was "optimistic" over the process.

An ECB official said in a Saturday conference call: "Private investors' contributions are expected to play a significant role in the capital-raising process by means of taking common shares."

But if the private sector response is not sufficient, "the banks will enter into resolution," the Greek finance ministry said earlier.