ECB reveals capital hole in Greek banks as unpaid loans soar | Business News

ECB reveals capital hole in Greek banks as unpaid loans soar

31 Oct 2015 | Author: | No comments yet »

ECB: Greek banks need $15.8 billion to get back on track.

Greece’s four biggest banks, which suffered severe losses when they were shuttered this summer as the country veered toward economic collapse, must raise nearly $16 billion in new money to withstand any new crisis, the European Central Bank said on Saturday.

The figure announced Saturday is the result of an ECB review of Greece’s four main banks following an agreement on the troubled country’s third bailout: 86 billion euros ($94.6 billion) from other eurozone governments in August. One of the biggest problems for the Greek banks is the high number of loans to businesses and consumers that are at risk of not being repaid – nearly 50 percent of the loans outstanding.

The review is an important step toward ending limits on bank customer withdrawals and transfers that continue to hamper businesses as the Greek economy struggles to recover. The banks — Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank — now must submit plans to raise the money to boost their capital buffers against future financial turmoil and losses. Greece is racing to bail out the banks before year end, when new European bank bailout rules take effect that would require seizing deposits over the 100,000-euro ($110,000) limit on deposit insurance. Instead, the money is expected to be raised from bank investors in some combination with funds from the 86 billion euro package of bailout loans that Greece agreed to this summer with eurozone creditors.

Greek finance minister Euclid Tsakalotos said that bank recapitalization and a viable solution to non-performing loans will both happen before the end of the year. “We would like to influence the banks’ policies, so that they do not invest in high-risk instruments. Because the bailout package is money that the Greek government would eventually have to repay, though, the government is wary of relying solely on that money. The Greek people and businesses have been directly feeling the effects of the banks’ problems since the Tsipras government moved to help prop up the banks in July by imposing capital controls.

As part of those controls, banks capped withdrawals at ATMs at 60 euros a day, creating hardship for many Greeks already hit by pension cuts, tax increases and other austerity requirements of Greece’s international bailouts. After six years of recession, tens of thousands of Greeks and businesses are unable to make payments on loans taken out for their companies, homes and cars. The central bank’s assessment found that at least 7 billion euros more in loans fell into arrears as the economy slumped this summer, on top of the existing amount of bad loans.

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