ECB stress tests – 14.4 bln needed for Greek banks

The European Bank of Greece announced the results of the Greek bank stress tests. The capital needs were calculated to be at 14.4 bln euros:

– Eurobank 2.12 bln euros

– Alpha Bank 2.74 bln euros

– National Bank of Greece 4.6 bln euros

– Bank of Piraeus 4.93 bln euros

Greece’s four main banks must raise 14.4 billion euros fresh capital, the ECB said after conducting a balance-sheet assessment and stress tests.

An asset-quality review resulted in valuation adjustments of 9.2 billion euros at National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE, the Frankfurt-based central bank said in a statement on Saturday.

In the stress tests, the banks’ capital gap amounted to 14.4 billion euros under a simulated crisis, and 4.4 billion euros under the baseline scenario. The four banks will have to submit recapitalization plans to the ECB’s supervisory arm by Friday, November 6.

The government of Prime Minister Alexis Tsipras and its European creditors reached a bailout agreement this summer after months of wrangling that brought Greece to the brink of leaving the currency union. Recapitalizing the country’s lenders is the first step to restart the country’s economy, which is still crippled by recession and capital controls.

“Covering the shortfalls by raising capital will result in the creation of prudential buffers at the four Greek banks, which will improve the resilience of their balance sheets and their capacity to withstand potential adverse macroeconomic shocks,” the ECB said in its statement.

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

Common shares, preferred shares, as well as other financing instruments, including unsecured senior liabilities, can be bailed in before a financial institution is eligible to use the public backstop of the state-owned recapitalization fund to cover its shortfall, according to the draft bill posted on the Greek parliament’s website.

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