World Economy

Greek Banks Need $16b to Survive

Greek Banks Need $16b to SurviveGreek Banks Need $16b to Survive

Greece’s four main banks must raise €14.4 billion ($16 billion) in fresh capital, after a review by the European Central Bank, 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.

The asset-quality review resulted in valuation adjustments of €9.2 billion at National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE, the Frankfurt-based ECB said in a statement Saturday. In the stress tests, the banks’ capital gap amounted to €14.4 billion under a simulated crisis, and €4.4 billion under the baseline scenario. The four banks will have to submit recapitalization plans to the ECB’s supervisory arm by Nov. 6, Bloomberg reported.

“Covering the shortfalls by raising capital would then result in the creation of prudential buffers in the four Greek banks, which will facilitate their capacity to address potential adverse macroeconomic shocks,” the ECB said in the statement, adding that a minimum of €4.4 billion, corresponding to the AQR and baseline shortfall, is expected to be covered by private means.

National Bank of Greece, the country’s biggest bank by assets, has a total capital shortfall of €4.6 billion, of which €1.6 billion arises from the baseline scenario. Piraeus has the biggest shortfall of all the lenders, having to raise €2.2 billion under the baseline scenario, and €4.9 billion in total. Alpha Bank only needs to raise €263 million under the baseline scenario, of a total shortfall of €2.7 billion. Eurobank has the lowest aggregate shortfall, totaling €2.2 billion, of which €339 million corresponds to the baseline scenario.

 Bailout Agreement

The government of Prime Minister Alexis Tsipras and Greece’s European creditors reached a bail-out agreement this summer after months of wrangling that brought the country to the brink of leaving the currency union and resulted in the imposition of capital controls. Recapitalizing the country’s lenders, after a month-long forced shutdown in July, is the first step to restart the country’s economy, which is still crippled by recession and restrictions on transfers of capital and ATM withdrawals.

Lenders will ask their shareholders and bondholders to voluntarily offer to plug any holes identified, before resorting to a €25 billion state backstop, according to a bank recapitalization bill on which the Greek Parliament is scheduled to vote on Saturday. Taxpayers’ funds will come from eurozone emergency loans under Greece’s latest bailout agreement.

With assets totaling €296 billion at the end of June, the four banks tested by the ECB account for approximately 90% of the assets of credit institutions in Greece, the ECB said. Attica Bank, which is not considered a systemically significant lender, was assessed by the Bank of Greece, which identified a €1 billion shortfall, according to a statement on Saturday.