Greek Banks Must Raise 14.4 Billion Euros After ECB Stress Test

31 Oct 2015 | Author: | No comments yet »

ECB: Greek banks need 14.4 billion euros to get on track.

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. The figure announced Saturday is the result of an ECB review of Greece’s four main banks, which now must submit plans to raise the money to boost their capital buffers against losses. 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. An asset-quality review resulted in valuation adjustments of 9.2 billion euros at National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE, the Frankfurt-based central bank said in a statement Saturday.

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. Greece is racing to bail out the banks before year end, when new European rules take effect that will require losses by major depositors such as small businesses. The government of Prime Minister Alexis Tsipras and its European creditors reached a bail-out agreement this summer after months of wrangling that brought Greece to the brink of leaving the currency union. 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.

Lenders will ask their shareholders and bondholders to voluntarily offer to plug any holes identified, before resorting to a 25 billion-euro state backstop, according to a bank recapitalization bill that the Greek Parliament is scheduled to vote on on Saturday. Common shares, preferred shares, as well as other financing instruments, including unsecured senior liabilities, can be bailed in before a financial institution is eligible to use the public backstop of the state-owned recapitalization fund to cover its shortfall, according to the draft bill posted on the Greek parliament’s website.

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