ECB tests show Greek banks have capital shortfall of 14.4 billion euros

31 Oct 2015 | Author: | No comments yet »

ECB tests show Greek banks have capital shortfall of €14.4b.

FRANKFURT, Germany (AP) — The European Central Bank says Greece’s battered banks need 14.4 billion euros ($15.8 billion) in fresh money to get back on their feet and resume normal business.

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 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 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. The announcement follows a series of stress tests on the banks to see how they are faring after a long-running dispute over reforms demanded of Greece for international support. 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.

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 results of the tests, which found that loans at risk of non-payment had increased by €7bn, will trigger a push to attract investors to fill this hole. 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.

Although the banks are currently being kept afloat by access to money through the eurozone monetary system, there is a rush to get recapitalisation completed. 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. 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. It is hoped that much of the black hole can be plugged by private investors, limiting the amount of official creditor money needed to keep the financial system afloat.

The bailout stand-off between leftist Prime Minister Alexis Tsipras and his country’s international backers — the International Monetary Fund and European Union — almost saw Greece fall out of the eurozone. Additional funding needs could also be covered by Greece’s existing bank bail-out fund – the Hellenic Financial Stability Fund – through a mixture of share and bond issuance. “Covering the shortfalls by raising capital will result in the creation of prudential buffers at the four Greek banks, which will improve the resilience of their balance sheets and their capacity to withstand potential adverse macroeconomic shocks,” said an ECB statement.

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