ECB: Greek Banks Recapitalization bill stands at less than $16 billion – Tsakalotos satisfied with bank results, optimistic on recap. U.S. Says Greece Must Lift Bank Governance to Build on Progress.
Athens.- AP, Reuters, Bloomberg
Greek Finance Minister Euclid Tsakalotos said on Saturday he was satisfied with the results of stress tests on the country’s four main banks and confident they would successfully recapitalize by the end of the year.
Greece’s banks need 14.4 billion euros ($15.85 billion) of fresh capital in an adverse scenario of economic performance, the European Central Bank said on Saturday, in health checks to start the rehabilitation of the country’s lenders.
“The numbers, particularly under the baseline scenario, are satisfactory,” Tsakalotos told Reuters.
“We have indications that the European Bank of Reconstruction and Development will participate (in the recapitalization of the banks). This is a good sign for private investors and Greek citizens because it marks a long-term commitment to the banking sector,” he said.
“We have every reason to be optimistic that the recapitalization process will be concluded by the end of the year.”
“We are encouraged by these results,” said the European Commission in a statement on Saturday. “This is an important step in the implementation of the three-year Greek program under the European Stability Mechanism.
“The bank recapitalization process is an integral part of the efforts by Greece and its partners to restore confidence in the banking sector, so that capital controls can be gradually removed and affordable lending to the economy can resume,” it added.
Greece’s parliament on Saturday approved legislation outlining the process of recapitalizing the country’s banks, coinciding with an ECB health check that showed its four biggest lenders need to plug a capital shortfall of 14.4 billion euros. Parliament approved the bill by a majority.
The bill states that bank rescue fund HFSF will have full voting rights on any shares it acquires from banks in exchange for providing state aid.
Under the bill the bank rescue fund will have a more active role, assessing bank managements.
The exact mix of shares and contingent convertible bonds the HFSF will buy from banks in exchange for any fresh funds it will provide will be decided by the cabinet.
Deputy Prime Minister Yiannis Dragasakis on Saturday appeared to rule out the possibility of the government allowing banks to sell portfolios of nonperforming loans to so-called distressed-debt funds.
“We refuse to accept any notion of buying and selling loans,” he told Parliament during the debate that preceded a vote on the bank recapitalization bill on Saturday. Dragasakis said that the government is willing to accept the “restructuring of loans.”
Dealing with the rising number of loans that are not being serviced on time is one of the key unresolved issues between Greece and its lenders.
The institutions want stricter criteria to be introduced for nonperforming housing loans, with banks foreclosing on the homes of anyone who lives above the poverty line and whose property is worth more than 120,000 euros.
ECB’s STRESS TEST RESULTS
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.
In checks on the financial strength of the country’s four main banks – National Bank of Greece, Piraeus, Alpha Bank and Eurobank – the ECB determined that even if the economy performs as forecast, the banks would need almost 4.4 billion euros ($4.8 billion) and more than 14 billion if it performs worse than expected, in a so-called ‘adverse scenario’.
International lenders have set aside up to 25 billion euros for the recapitalization of banks under terms of Greece’s third international bailout, worth up to 86 billion euros.
A key financial health check known as a “comprehensive assessment” conducted by the ECB’s banking supervision department identified a capital shortfall of 4.4 billion euros under a baseline scenario and 14.4 billion euros in an adverse scenario, the ECB said in a statement.
The health check comprises an asset quality review and a forward-looking stress test aimed at assessing “the specific recapitalisation needs of the individual banks” under Greece’s current economic adjustment programme, the statement explained.
“Overall, the stress test identified a capital shortfall across the four participating banks of 4.4 billion euros under the baseline scenario and 14.4 billion euros under the adverse scenario,” the ECB said.
“The four banks will have to submit capital plans explaining how they intend to cover their shortfalls by November 6,” it said.
“This will start a recapitalisation process under the economic adjustment programme that must conclude before the end of the year.”
Covering the shortfalls by raising capital would “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 shock,” the ECB added.
Piraeus has the biggest shortfall of all the lenders, having to raise 2.2 billion euros under the baseline scenario, and 4.9 billion euros in total. National Bank is seen having a total capital shortfall of 4.6 billion euros, of which 1.6 billion arises from the baseline scenario. Alpha Bank only needs to raise 263 million euros under the baseline scenario, of a total shortfall of 2.7 billion euros. Eurobank has the lowest aggregate shortfall, totaling 2.2 billion euros, of which 339 million corresponds to the baseline scenario.
“Eurobank will seek the largest participation of high-quality private funds, turning to existing and new investors, aiming at its full capital shielding,” an official said.
Piraeus Bank, Greece’s second-largest lender by assets, on Saturday reported a loss of 635 million euros ($698.88 million) in the first nine months of 2015 as provisions for bad loans continued to weigh on its bottom line.
The bank took credit-loss provisions of 2.12 billion euros in the January-to-September period, down from 3.19 billion euros in the same period last year.
Piraeus said non-performing loans reached 40.5 percent of its book at the end of the third quarter, up from 39.4 percent in the second quarter.
Greece’s central bank said on Saturday it conducted a comprehensive assessment on small Greek lender Attica Bank, in line with the European Central Bank’s health check of the country’s four big banks.
The Bank of Greece said Attica Bank has a capital gap of 1.021 billion euros under the adverse scenario of the stress test and a shortfall of 857 million euros under the baseline scenario.
Attica Bank will submit a capital plan to the Bank of Greece on how it plans to cover its capital shortfall, the central bank said.
U.S. Says Greece Must Lift Bank Governance to Build on Progress
Greece must improve financial-sector governance now that its biggest banks are moving to sounder footing, the U.S. Treasury’s top international official said.
“There’s a meaningful stabilization of the Greek banks,” Nathan Sheets, undersecretary for international affairs, said in an interview ahead of Saturday’s stress test and asset quality review results.
“The challenging question is, once the stabilization has been achieved, how do we move to the next level, so to speak, where the banks are more resilient and are able to actually provide credit to the economy and support the growth process?” Sheets said Friday afternoon in his Washington office. “That gets into a very important set of issues about governance of these institutions.”
The European Central Bank on Saturday said Greece’s four main banks must raise 14.4 billion euros ($15.9 billion) in fresh capital, as investors and taxpayers face the cost of repairing the damage resulting from six months of wrangling between the country’s government and its creditors. Repairing the financial industry is a central element of the country’s 86 billion-euro bailout, signed in August to keep Greece in the common currency.
Milestones in the financial sector will be the focus of euro-area requirements for Greece to unlock its next payments from the rescue program. Greece is working to tap a 2 billion-euro disbursement in coming days, and a further 1 billion is slated to be paid out in November if Prime Minister Alexis Tsipras can enact the required reforms.
Sheets said Greece has made progress, and faces the challenge of carrying out its pledges and keeping the country moving forward.
“The situation with the banks is clearly better than it was a few months ago, and I’m hopeful that in the months to come we’ll see further improvements and signs of strength,” he said.