Greek Banks Need More Money

ATHENS – Greek banks, which were brought into deep trouble when a previous government imposed 74 percent losses on investors and bondholders, still need another 6.382 billion euros ($8.86 billion) in a state recapitalization, a stress test has found.
The banks have already received 41 billion euros ($56.9 billion) in an injection of government from bailouts, but the review by BlackRock Solutions showed they are still in trouble, largely because of soaring bad loans during a crushing economic crisis that has left many Greeks unable to pay mortgages, credit cards and loans.
The estimate was made after an analysis of the troubled loan portfolios the National Bank, Alpha, Piraeus and Eurobank along with five smaller lenders late last year, the Bank of Greece announced.The central bank’s much-anticipated report said that in the period from 2014 to 2016, local lenders will suffer losses of 50.24 billion euros from nonperforming loans in Greece, plus another 10 billion euros from bad loans issued abroad.The needs of Greece’s lenders are estimated at: 2.945 billion euros for Eurobank, 2.183 billion euros for National, 567 million euros for Attica Bank, 425 million euros for Piraeus, 262 million for Alpha and 169 for Panellinia, while the three other banks (all of which are smaller than the others) will need no additional funds.The question of how much the banks would need and from where the money would come was one of the obstacles hanging up a an agreement with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) before Greece can get a delayed nine billion euro installment from the remains of two rescue packages of 240 million euros that runs out this year.

Stabilizing bad loans is the biggest challenge for local lenders in 2014 and a key condition for the cash flow in the Greek economy to return to normal. The latest available data on NPLs released by the Bank of Greece showed that loans unpaid for over three months amounted to 29.3 percent of the total at the end of June.

Bank officials estimate that bad loans were close to 35 percent at the end of December, 2013, and that they will continue to increase this year too, although at a slower pace, before peaking in 2015 and starting to decrease from the year after that.

Among the bad loans is 250 million euros owed by the ruling parties of the New Democracy Conservatives and PASOK Socialists who got the money without collateral, aren’t repaying it, and gave immunity to the bank officers who approved the deals and then gave banks the 41 billion euros from the bailouts.

The stress results came as Piraeus announced it will initiate a major share capital increase of 1.7 billion euros, while Alpha is expected to announce its own increase on March 7, likely to amount to 1 billion euros. National said it can cover its requirements without a share capital increase. Piraeus also announced profits of 2.53 billion euros for 2013 at the same time it said it needs more money.

The Bank of Greece has also asked lenders to submit their plans to strengthen their capital bases by April 15. BoG sources said that the plans should be implemented as soon as possible and that the issue is being negotiated between the government and its creditors, while banking sources said at least six months will be required.

Greece is awaiting a nine billion euro ($12.46 billion) installment it needs to help meet a 10 billion euro ($13.67 billion) bond payment in May, at the same time there will be critical elections for Greek municipalities and the European Parliament.

But a dispute with envoys from the the Troika has stalled an agreement that must be reached.

Greece is hoping for resolution before a March 10 meeting of Eurozone finance chiefs in Brussels who have to give the okay for the loan which is part of the last vestiges of two bailouts of $325 billion from.

Before the stress test came out, Greece said it needed to give the banks only six billion euros ($8.3 billion) while the Troika put the figure at nine billion euros ($12.46 billion) although the Financial Times had reported it could be as much as 20 billion euros ($27.69) billion.

Greece wants to separate the banks from other unresolved reforms on a list of 153 that remain undone. “The disagreement between the Troika and Greece on banks should not be the reason not to conclude the review,” a senior Finance Ministry official who declined to be named told Reuters.

“This means that Greek banks will be recapitalized based on the Greek central bank’s [stress test] results. When the European Central Bank’s stress tests come out, and if there is a difference, then additional capital will be provided,” the official added.

Other pending issues include the troika’s demand that rules on mass dismissals change. A planned meeting between the lenders and Labor Minister Yiannis Vroutsis was postponed.

The Troika wants agreement over a midterm budget plan which has to be submitted to Parliament by May and will contain the measures needed to cover next year’s fiscal gap.

The head of the European Stability Mechanism, Klaus Regling, told reporters that some 9 billion euros in bailout funding which Greece is expecting to receive could be released as early as next week. “If there is a positive result of the Troika review and if conditionalities are met, there could be a rapid disbursement of funds to Greece,” he said.

But unless some kind of agreement is reached, even in understanding, Finance Minister Yannis Stournaras will go to Brussels hoping his peers will still okay release of the installment or later in the month.