ECB reveals capital hole in Greek banks as unpaid loans soar

31 Oct 2015 | Author: | No comments yet »

ECB reveals capital hole in Greek banks as unpaid loans soar.

Greece’s banks need to raise more than 14 billion euros (10 billion pounds) of extra capital to cover mounting unpaid loans, the European Central Bank said on Saturday as it announced the results of stress tests intended to rehabilitate Greek lenders. The capital hole has emerged chiefly due to the rising number of Greeks unable or unwilling to repay their debt, after a dispute over reforms between the leftist government and international lenders almost saw Greece leave the euro.

The central bank’s assessment was eagerly awaited by the financial world as a crucial step in determining how much money the Greek banks would require to achieve stability as the country tries to claw its way out of its deep economic hole. 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. 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. The fact, however, that the declared capital hole is smaller than the 25 billion euros earmarked to help banks in the country’s bailout may encourage investors such as hedge funds to buy shares. Germany’s Deputy Finance Minister Jens Spahn said attracting investors would reduce the support needed from the euro zone’s rescue scheme, the European Stability Mechanism. 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. But Ramon Quintana, a director general in the ECB’s bank supervision arm, cautioned that Greece’s economy needed to stay on track for the banks to hold steady. “Any deviations from these scenarios means that reality can go beyond what is expected in the exercise,” he told journalists. “This is why it is very important to avoid any deviation from the economic growth expected.” Banks have struggled most amid the months-long stand-off between leftist Prime Minister Alexis Tsipras and his country’s international backers – the International Monetary Fund and European Union. 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.

But Greece’s future and that of its banks remains uncertain, despite the latest checks. (Reporting By John O’Donnell, Francesco Canepa and George Georgiopoulos; Additional reporting by Gernot Heller in Berlin; Editing by Raissa Kasolowsky) 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.

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