Recapitalization plan to be completed this year

30 October 2015
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A new draft legislation on bank recapitalization is expected to be voted in Parliament by Saturday night, while all actions envisaged should have been completed ahead of January 1, 2016 to avoid any risk of a bailout in deposits, Finance ministry officials said on Friday.

Protection of deposits up to 100,000 euros were fully guaranteed according to a community directive BRRD (Bank Recovery and Resolution Directive), put into force from January 1, 2015 in EU member-states and in Greece from January 1, 2016.

European Central Bank will release the results of a stress test round of the country’s four systemic banks on Saturday. There are two scenarios for the financial needs of each bank: the base line scenario and the adverse one. According to sources, the capital needs of systemic banks under the base line scenario will be easily covered by private capital.

However, if private investors failed to cover this sum then a bank would be put into resolution.

The Greek government and its creditors have agreed to earmark 25 billion euros for the recapitalization of banks. The part of the capital needed to cover the adverse scenario for each bank will be converted into common shares with full voting rights (in the previous recapitalization the shares acquired by the Greek state had limited voting rights).

Another financial tool envisaged in the draft law are the Coco’s type of bonds (contigent convertible bonds). These are optional convertible bonds with high yield (8-10 pct), able to be converted to common shares with voting rights. Coco’s offer financial support and reduce costs for taxpayers, while also offer the possibility of creating revenue. All preferred stocks currently owned by the Greek state it is considered to be bank capital and could be converted into common shares with voting rights.

Finance ministry officials said that the government has a double goal: to attract foreign investments and for the state to have a strong participation in banks seeking future profits.

The new legislation envisages a new strong framework enhancing transparency for banks and for the Hellenic Financial Stability Fund. The previous recapitalization plans failed to resolve the non-performing loans issue. The government seeks a solution to the problem to ensure that this would be the last recapitalization of Greek systemic banks.

The finance ministry said that European Bank for Reconstruction and Development (EBRD) will participate in the recapitalization scheme.

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