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Victoria Mindova

The Ministry of Finance has refused the request of the union of Greek banks to exchange Greek government bonds with new bonds guaranteed by the European Financial Stability Facility (EFSF) in order to cover the losses between the face and market value of securities. This has become clear after the meeting of bankers with Finance Minister Yiannis Stournaras to discuss the recovery of the banking sector of the country.

Today, the remaining government bonds in their balances are being traded on the secondary market at about 15% of the original nominal value, a Greek financial analyst told GRReporter. The delay of recapitalization has cornered Greek banks. Bankers urge the government to assist them to cover the loss due to the decline in market value and to avoid forcing shareholders to take most of the burden of covering the capital needs of the financial institutions.

The plan of additional support to banks after the haircut of the Greek debt was drawn up in the spring at the time of Prime Minister Lucas Papademos. The proposal at that time was that the European Financial Stability Facility (EFSF) should give guarantees to Greece to issue new bonds to replace the "haircut" bills held by banks in order to not significantly affect their capital adequacy. Subsequently, the supervisory Troika and especially the European Central Bank (ECB) opposed this plan because this would be preferential treatment to Greek banks over other investors who had suffered losses due to the restructuring of the Greek foreign debt.

Greece is currently awaiting the tranche of 31.5 billion euro, a significant part of which will be allocated to banks to recapitalize. The aid to them does not include the losses due to the decline in the market value of government bonds issued after the debt haircut. The Hellenic Financial Stability Fund will obtain around 24 billion euro of the aid and it will provide the banks with funds in order for them to stabilize their balance sheets. Therefore, the union of Greek banks has announced that the financial reports this year will be delayed by about a month.

Meanwhile, the governor of the Bank of Greece, George Provopoulos, has stated that the changes coming with the Memorandum of financial support are the minimum reforms that the country needs to apply to change its economic model. He said at the forum on the more efficient use of EU funds, that European subsidies should be used within the context of the new framework for economic growth, along with structural changes. The European grant programme provides for the granting to Greece, over the next five years, of less funds in comparison to the funding provided in 2007-2013.

Greek banks closed on Monday with a significant decline on the Athens Stock Exchange. The main index fell by 6.3% and closed at 819.6 basis points. The turnover on the Exchange reached 115.3 million euro, whereas banks lost more than 15.8% of their capitalization compared to Friday last week. Piraeus suffered losses of -18,6%, Cyprus Popular Bank (-17,2%), National Bank of Greece (-16.7%), Eurobank (-14,5%), Alpha Bank (-13,2%) and MIG (-12,1%).