A fresh economic crisis would leave Greek banks exposed and see their capital slide by billions, the European Central Bank said yesterday after publishing the results of a latest stress test.
The test on four major Greek banks four months before a planned exit from an €86bn bailout programme, showed their capital reserves would drop some 9% on average — around €15.5bn ($18.5bn).
The health check on Alpha Bank, Eurobank, the Greek National Bank and Piraeus Bank simulated how they would be affected by issues such as non-repayment of loans or a slump in turnover.
The putative drop is the equivalent of around half of the banks’ respective cash reserves.
The ECB said, however, that the test did not have a pass or fail threshold regarding a need to recapitalise but was merely a “general” evaluation, a spokesperson said.
The tests relate to the strength of the banks’ Tier 1 core equity ratio compared with total risk-weighted assets.
The four are among 120 banks which the ECB has been monitoring since 2014 and the latest test comes three months ahead of an August 20 deadline by Athens’ creditors on whether Greece can exit the current bailout programme.
German media reports have suggested the programme will be extended.
Piraeus Bank head Christos Megalou said, however, that “the economic climate in Greece is notably improved.”
Greece has received three international credit lines since 2010, amounting to €300bn of aid along with help to restructure sovereign debt.
The country has endured a strict austerity programme in order to meet bailout criteria. Greece’s four biggest banks said that no new funding plans were needed after stress test results showed they would lose around €15.5bn of their capital by 2020 under an adverse economic scenario. Test results for 33 lenders from other eurozone countries will be published in early November.
Among the banks, Alpha Bank performed best as its Common Equity Tier 1 ratio (CET1) would drop by 8.56 percentage points to 9.69% according the adverse scenario of the test.
It would drop by 8.68 percentage points to 6.75% for Eurobank, 9.56 percentage points to 6.92% for National Bank of Greece and 8.95 percentage points to 5.90% for Piraeus Bank.
According to the ECB, the 2018 health check was not a pass or fail exercise as no predetermined capital threshold was set that would trigger a need to recapitalise. “Any recapitalisation decision will be taken on a case-by-case basis, after assessing each bank’s situation in the light of the results of the stress test and any other relevant supervisory information, following a holistic approach,” the ECB said.
After the release of the stress test results, Alpha Bank, National Bank and Eurobank said in separate statements that the input from SSM (Single Supervisory Mechanism) supervisors was that they had no capital shortfall and hence no capital plan was deemed necessary.
Piraeus Bank said it remains focused on executing an existing capital-strengthening plan to ensure that it would stay above applicable capital requirements at all times, while accelerating the de-risking of its balance sheet. Greek banks have been recapitalised three times since a debt crisis exploded in 2010, but are still burdened by €96bn of soured debt.
They have committed to targets to reduce that load to €65bn by 2019.
May’s exercise was their fourth stress test during the eight-year debt crisis.
Their first recapitalisation took place in 2013 when a bank rescue fund, funded by its eurozone lenders and the IMF, pumped €25bn into the four banks, while another €3.5bn was raised from private investors.
After another health check in 2014, banks raised €8.3bn from private investors on prospects of a recovery. But this proved futile a year later as a new leftist government in Athens clashed with official lenders, sparking a massive flight of deposits which led to capital controls.
Banks were forced to undergo another stress test and recapitalise again in 2015 at beaten down share prices, severely diluting existing shareholders.
A total of €12bn was pumped into them via rights issues and CoCo bonds. Banks have been under regulatory pressure to tackle the bad debt problem, which restricts their ability to expand credit and help the economy recover. The so-called non-performing exposures (NPEs) are the biggest challenge facing the sector.
The headquarters of European Central Bank in Frankfurt. A fresh economic crisis would leave Greek banks exposed and see their capital slide by billions, the ECB said yesterday after publishing the results of a latest stress test.
