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.Following months of “stress testing” supervisors at the ECB have calculated that under its worst case scenario, where the economy deteriorates and loans turn bad, the country’s four biggest lenders will need recapitalising to the tune of €14.4bn. 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 four banks – Alpha Bank, Eurobank, NBG and Piraeus Bank – have until 6 November to say how they intend to make up that shortfall, the ECB said.

An ECB stress test known as a “comprehensive assessment” identified a capital shortfall of €4.4bn under a best-case scenario and €14.4bn in a worst-case situation. The lenders – Alpha, Piraeus, National Bank of Greece, and Eurobank – have until November 6 to inform the ECB how they plan to cover the capital shortfall. The final deadline to resolve the banks has been set for the end of the year to avoid private sector shareholders and depositors from being hit under new EU-wide “bail-in” laws that could see them foot the bill for part of the recapitalisation. 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.

In August, eurozone finance ministers released €26bn of the €86bn in bailout funds that went to recapitalising Greece’s stricken banking sector and make a debt payment to the ECB. The financial system has been kept alive through emergency cash injections from the ECB since February, as ordinary Greeks have rushed to pull their money out in record numbers. Recapitalisation is set to being soon after the newly re-elected government of prime minister Alexis Tsipras submitted a bank recapitalisation bill to the Greek parliament on Friday. To reach its outcome, however, the ECB counts into the calculation billions of euros of future tax rebates that the Greek government could pay its banks. 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)

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