Greece's Eurobank to seek big participation of investors in recap | Business News

Greece’s Eurobank to seek big participation of investors in recap

31 Oct 2015 | Author: | No comments yet »

E.C.B. Says Greek Banks May Need Additional $15.9 Billion to Cover Bad Loans.

The European Central Bank on Saturday delivered its health report on Greece’s struggling banks, saying the lenders might might need as much as $15.9 billion in additional funds to make up for bad loans.Following months of “stress testing” the ECB found 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.

Under the baseline scenario, they will need €4.4 billion, while under the adverse scenario, the capital shortfall reaches €14.4 billion, the ECB said. “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,” the ECB added. One of the problems is the high number of loans that the banks have extended to businesses and consumers and are at risk of not being repaid — more than 40 percent of the loans outstanding.

This will be the third capital increase made by the country’s battered lenders since Greece’s debt crisis erupted in 2010 and has to be completed by the end of the year, before the deposit bail-in instrument becomes effective at the beginning of 2016. Saturday’s assessment is an indication of what it might take to let the banks overcome that problem and enable them once again to operate as fully functioning lenders. Under the country’s third bailout agreement reached in mid-July, some €25 billion, or about $27 billion, of public money was earmarked to recapitalize Greece’s banks, which suffered a major deposit flight during the six-month-long negotiations between the Greek government and the country’s international creditors.

In addition to this, Greek lenders have been hit with massive losses arising from nonperforming loans as the economy slipped back into recession this year. 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. 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.

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