Frankfurt: Greece’s banks need to raise more than 14 billion euros ($16bn) of extra capital to cover mounting unpaid loans, the European Central Bank said yesterday as it announced the results of stress tests intended to rehabilitate Greek lenders.
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.
As controls on cash withdrawals have squeezed the economy, loans at risk of non-payment have increased by 7bn euros to 107bn euros.
That is roughly half of all the credit given by the country’s four big banks, according to the ECB. Almost 57 per cent of the loans made by Piraeus Bank, the bank which fared worst, are at risk.
The fact, however, that the declared capital hole is smaller than the 25bn 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.
The lenders are currently kept afloat by central-bank cash but there
is a rush to get the recapitalisation finished.
If it is not done by the end of the year, new European Union rules mean large depositors such as companies may have to take a hit in their accounts.
Greece’s Finance Minister Tsakalotos said yesterday he was optimistic that Greece’s banks would successfully recapitalise by the end of the year.
The stress tests looked at how many loans would go unpaid if
the country’s economy performs as expected up until 2017 – the so-called ‘baseline’.
It also simulated a ‘stress’ scenario, where Greece dips further than expected. For this test, ECB officials assumed that the economy would shrink by more than 3pc this year and next before growing modestly in 2017.
In checking the financial strength of the country’s four main banks – National Bank of Greece, Piraeus, Alpha Bank and Eurobank – the ECB determined that even should the economy perform no worse than expected, the banks would still need almost 4.4bn euros.
It is the performance of the banks under stress that determines how much capital is needed. The ‘baseline’ scenario, for instance, expects Greek growth of 2.7pc in 2017 – far outstripping Germany now.
The ECB defended an
earlier test that had given the banks a clean bill of health before the most recent political turmoil.
Much of the focus so far in rehabilitating Greece has focused on the scale of its national debt, which is approaching double its economic output.
In comments to an Italian newspaper published yesterday, ECB president Mario Draghi said that some debt relief may be required.
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