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The four top banks’ capital needs are moving at levels around 5 billion euro. They were determined by the stress tests carried out by BlackRock. According to banking sources, Eurobank’s capital needs amount to 2.5 billion euro, the National Bank’s - 2 billion euro and Piraeus Bank’s - less than 500 million euro. Alpha Bank is only one of the good banks, which apparently does not need additional capitals.

It is noted, however, that there is still no agreement on some technical aspects between the Troika and the Bank of Greece which can lead to significant differences in the final results. Banking sources estimated that the finalization of outstanding issues with the Troika will lead to small changes to the amount of 5 billion euro. However, information from Kathimerini shows that the above assessment of capital needs was made using a methodology which relies more on the baseline scenario which foresees that the country will return to the upward trajectory this year. If the Troika insists on a more conservative approach, i.e. to give more weight to the worst case scenario (which provides for the continuation of the recession for two years - 2014 and 2015), then the amount of capital needs could be significantly higher.

Banking sources believe that such a scenario is highly likely, since the development of the economy shows that Greece is now moving upwards. This framework provides that the GDP is likely to be significantly higher than the baseline projections.

It is noted that BlackRock’s adverse scenario about the economic development provides for a reduction in GDP of 2.5% in 2014, compared to the forecast of the International Monetary Fund for a 0.6% increase and a 0.5% reduction in GDP in 2015, and compared to IMF’s forecast of a 2.95% increase. For 2016, the worst BlackRock scenario provides for a 1% increase in GDP, versus IMF’s forecast for a 3.74% increase. Forecasts of the International Monetary Fund are the main scenario.

Reactions

Eurobank sources do not hide their satisfaction with the development. They believe that the publication of capital needs and the planned change in legislation by the government are a major step towards the increase of the share capital of the bank, which will amount to 2.5 billion euro. It is noted that the bank’s capital needs were formed at levels which were defined by the market and investors. It is argued that investors' interest to meet capital needs is very large.

For its part, the National Bank did not comment. It is noted, however, that the final amount of capital needs will be attainable and unpleasant surprises are impossible. It is stressed that the question of increasing the share capital has not been raised and the economic development will confirm the high quality of the banking group’s credit portfolio.

Management representatives of Piraeus Bank did not comment on the amount of capital needs, in anticipation of the official report.

Alpha Bank sources did not hide their satisfaction with the fact that the bank does not need additional capitals. As noted, according to the baseline scenario, the bank has a capital stock of 1 billion euro and even according to the more adverse scenario, which envisages a decline in 2014 and 2015, the capital base of the bank is sufficient to cover possible losses.

Outstanding issues

Outstanding issues which must be discussed with the Troika include the delimitation of indicators of capital adequacy of banks and the management of deferred taxes. It should also be determined according to which scenario banks’ capital needs will be calculated - according to the baseline scenario or according to the unfavourable one, or whether according to a certain combination of both. Differences can lead to changes in the amount of the potential profit from relevant sales of assets for the period 2014 - 2016 which the Troika will adopt.

The bill for banks

Immediately after the publication of capital needs, the Ministry of Finance will submit a new bill for banks, which will have three main points:

1. An increase in the share capital of banks which have already received state aid;

2. A mandatory conversion of bonds with a reduced guarantee in common shares, if a bank resorts to state aid again. The imposition of a limit on the remuneration of senior executives of good banks is also envisaged. According to the bill, the remuneration cannot be higher than the average salary in the bank, multiplied by 10, or higher than the average salary in the country, multiplied by 15. The limit will be imposed if banks resort to state aid again.

3. Buying out of bank warrants. Despite the information that the Troika does not agree, the Financial Stability Fund will be allowed to submit public offers for the buying out of warrants issued by banks. Via the buying out of warrants, the Fund aims at the release of bank shares associated with them, so that it could then continue selling these assets to individuals.