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The conditions on the recapitalization of Greek banks have changed again

07 March 2014 / 16:03:31  GRReporter
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The capital requirements of the banks are estimated at 6.38 billion euro, the larger portion of them, namely 5.8 billion euro, being the capital requirements of the four largest banks as shown by the stress tests conducted by the Bank of Greece in cooperation with BlackRock. In particular, the capital requirements of each bank are as follows:

• 2.94 billion euro of Eurobank

• 2.18 billion euro of the National Bank of Greece

• 425 million euro of Piraeus Bank

• 262 million euro of Alpha Bank

• 397 million euro of Attica Bank

• 169 million euro of Penellinia Bank.

Piraeus Bank, Alpha Bank and Eurobank will try to cover their capital requirements, but also to redeem the preferred shares owned by the state, through a capital increase. Piraeus Bank will proceed to a capital increase of 1.75 billion euro and will access the markets to obtain fresh money through a bond loan worth 500 million euro. It is expected that Alpha Bank will proceed to a capital increase of about 1 billion euro and Eurobank will increase its capital by 3 billion euro. The management of the National Bank of Greece has announced in turn that it will cover its capital requirements not by a capital increase but through the sale of subsidiaries, such as the national insurance company, and of an additional share of Finansbank, which it has already estimated at 40%.

As is clear from the report of the Bank of Greece, the expected losses that the Greek banks will incur due to bad loans in Greece will amount to 50.24 billion euro in the period 2014-2016 whereas the losses due to non-performing loans abroad will amount to another 10 billion euro. The total amount of these losses, namely 60.24 billion euro, will be offset by 38.38 billion euro from the provisions for non-performing bank loans and another 10.34 billion euro will come from the accumulation of internal capital (profit before provisions, sales of assets, benefits of different collaborations, etc.). The remaining capital deficit of 11.52 billion euro will be fully covered by the banks’ capital that amounted to 23 billion euro in June 2013. However, according to the stress tests, the capital adequacy of the banks should reach 8% in December 2016 or 17.86 billion euro in disposable capital. To achieve this goal the banks must be recapitalized with the amount of 6.38 billion euro.

Now the main question is how much time the financial and credit institutions will have to raise the required capital. According to the Bank of Greece, the banks will have to submit, no later than April 15, a plan of the capital increase based on the results of the baseline scenario as well as a timetable for its implementation in the shortest possible time. Sources from the central bank state that the government and the Troika are considering the matter at present. According to banking sources, the minimum period should be six months or more, depending on the period determined by the European Central Bank in connection with the covering of the capital requirements in compliance with the stress test conducted by it. Bankers define this stress test as too strict and emphasize that the actual results of the economic development will be much more positive than those from the stress tests. Sources from the Bank of Greece note that the revision of the banks' portfolios in Greece and abroad has been comprehensive and that even the insurance companies to the banks have been revised by BlackRock.

The particularly strict approach of the central bank is shown by the fact that it requires the banks to provide provisions to cover at least 95% of the expected losses from bad loans by the end of 2016 and 52% of the losses from non-performing loans by the end of 2016, as estimated by BlackRock. It should be noted that, according to the European Banking Authority (EBA), 75% of the European banks have a 52% coverage ratio of bad loans. Furthermore, with regard to the delayed tax requirements, the approach is more conservative than the stress test of the European Union in 2011.

A new bill on recapitalization is necessary

The introduction of a new bill to increase the banks’ capital should be considered already mandatory since the announced recapitalization cannot be achieved without a new legal framework. It is noted that, if a legal framework determining how the increase of capital is to be completed is not prepared in the near future, banks will have a capital deficit of 6.4 billion euro in theory. According to sources, during the talks, the Troika has considered making the triggering of the new legal framework a prerequisite for the payment of the tranches.

However, when the central bank published the information on the capital requirements of the banks, the Financial Stability Fund stated that, if necessary, it would help in the capital increase of the systemic banks. Executive Director of the Fund Anastasia Sakellariou said that the organization would support the four largest banks in Greece in their efforts to strengthen their capital positions, including through access to capital markets. A message by the Financial Stability Fund reads, "The Fund is informed of the capital requirements of the Greek banking system as defined by the Bank of Greece and will provide capital support, if requested to do so, to ensure the stability of the financial system."

Tags: RecapitalizationFinancial Stability FundCapital adequacy
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