ECB stress tests show Greece needs $22.3b in fresh capital

FRANKFURT • Greece's banks need €14.4 billion (S$22.3 billion) of fresh capital, the European Central Bank (ECB) has said, in health checks to start the rehabilitation of the country's lenders.

The announcement yesterday follows a series of stress tests on the banks to see how they are faring after a long-running dispute over reforms demanded of Greece for international support.

The results of the tests, which found that loans at risk of non-payment had increased by €7 billion, will trigger a push to attract investors to fill this hole.

Although the banks are currently being kept afloat by access to money through the euro-zone monetary system, there is a rush to get recapitalisation completed.

If it is not done by the end of the year, new European Union rules mean large depositors such as companies may have to take a hit in their accounts.

The tests looked at how many loans would go unpaid if the country's economy performs as expected up until 2017 - the so-called "baseline". It also simulated a "stress" scenario, where the economy dips further.

In checks on the financial strength of the country's four main banks - National Bank of Greece, Piraeus, Alpha Bank and Eurobank - the ECB determined that even should the economy perform as forecast, the banks would need almost €4.4 billion.

"The four banks will have to submit capital plans explaining how they intend to cover their shortfalls by Nov 6," the ECB said.

The bailout stand-off between leftist Prime Minister Alexis Tsipras and his country's international backers - the International Monetary Fund and the EU - almost saw Greece fall out of the euro zone.

It led to the freezing of central-bank funding for Greece's banks and forced controls on cash withdrawals. Although this stemmed a further haemorrhaging of savings, it squeezed the economy, making it harder for borrowers to repay loans.

Of an €86 billion bailout of Greece, €25 billion is earmarked for banks.

The fact that the capital hole is smaller may encourage investors such as hedge funds as well as limit the amount of cash that the state has to spend in a bailout that entangles itself further in the ownership of the four big groups.


A version of this article appeared in the print edition of The Sunday Times on November 01, 2015, with the headline 'ECB stress tests show Greece needs $22.3b in fresh capital'. Print Edition | Subscribe