Funds for Greek banks 'depend on stress test'

Graffiti by street artist Flip on an Athens wall depicting a baby attached to its umbilical cord - with a stark reminder to Greeks of their debt to their international creditors.
Graffiti by street artist Flip on an Athens wall depicting a baby attached to its umbilical cord - with a stark reminder to Greeks of their debt to their international creditors.PHOTO: AGENCE FRANCE-PRESSE

FRANKFURT/BRUSSELS - Initial bailout funds for Greek banks will be placed in a special account not on their balance sheets and lenders will receive fresh equity only after a "stress test" is finished by the end of October.

Sources yesterday said an initial €10 billion (S$15.7 billion) will be made available "immediately" to shore up confidence in the Greek banks, while the European authorities conduct a detailed asset quality review that is expected to take several months.

Greek banks will have to submit viable business plans before fresh equity is disbursed and will only get cash from the special account, which will be controlled by the European Stability Mechanism, once the resolution authorities sign off on the plans, the sources, who asked not to be named, said.

A further €15 billion will be available before the end of the year.

"When the full recapitalisation of banks is fulfilled, it will have a major impact on the economy," one source said. "We know that there is around €40 billion in cash under the mattresses in the real economy, and money could come (back to the banks) very quickly."

Greek banks, closed for much of July, have been kept on a lifeline by the European Central Bank (ECB). Cash withdrawals are limited to €420 per week to prevent a run.

Greece and its creditors this week agreed on a third bailout deal, potentially worth up to €86 billion, and expects to have all approvals in place by Aug 20, when a €3.2 billion payment to the ECB is due.

Meanwhile, sources in the EU expect Greece to tumble back into deep recession this year and next.

Greek Economy Minister Giorgos Stathakis had said he believed the economy would experience "a small recession" this year.

The sources said the Greek economy, which last year crawled out of a six-year recession, will shrink 2.3 per cent this year and a further 1.3 per cent in 2016. Growth should then return, running at 2.7 per cent in 2017 and 3.1 per cent in 2018.

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on August 13, 2015, with the headline 'Funds for Greek banks 'depend on stress test''. Print Edition | Subscribe