Greek Banks to Face Stress Test

The National Bank of Greece plans to start stress tests for the country’s four systemic banks in late February with a view to determine by June if they need fresh capital before the end of the Greek bailout program.

European Central Bank President Mario Draghi said Monday that the Single Supervisory Mechanism may front-load stress tests for Greek banks. Banks have been asked to send data by the end of February, a Bank of Greece official said, requesting anonymity in line with policy, Bloomberg reported.

As Greece prepares for a post-bailout era when the program ends in August, shrinking bad loans at banks has become the most pressing issue. At the end of the first semester non-performing loans, excluding off-balance sheet exposures, stood at €72.8 billion ($86.4 billion), missing the target set by supervisory authorities for €72.4 billion. The non-performing exposure ratio was 50.6%, higher than the 50% target.

The push to complete the stress tests comes after the International Monetary Fund’s demand in July for a new asset-quality review, or AQR, for Greek banks. The AQR request has cast a shadow over the banking system and economy. Since late July, the country’s banking index has tumbled more than 30%.

The fund’s demand would result in a “further erosion of investor confidence in Greece and an undermining of European banking regulators’ political independence,” founder and chief investment officer of Hayman Capital Management, J. Kyle Bass, wrote in an article published by Bloomberg.

The Greek government, the Bank of Greece and the ECB say that such an AQR would harm the nation’s lenders because they need to focus on addressing the NPL issue.

The FTSE Athex Banks Index, which includes Greece’s four largest banks, fell almost 12% on Monday and slid another 6.5% on Tuesday in Athens. Alpha Bank SA dropped 6.3%, Eurobank Ergasias SA fell 4%, National Bank of Greece SA slid 4.6% and Pireaus Bank SA tumbled almost 18%.

 “Uncertainties clouding Greek banks will remain in place until May, or June, when the impact of the series of underway/forthcoming exercises will be fully known,” according to analysts at Pantelakis Securities.