Greek Banks' Bill of Health Frees Bailout Funds for Debt Relief

(Bloomberg) -- Greece’s biggest banks emerged unscathed after a stress test, giving European policy makers one less worry as they plan for the end of the nation’s latest bailout in August.

Piraeus Bank, National Bank of Greece, Alpha Bank and Eurobank Ergasias survived the test’s adverse scenario, which pitted them against a fresh recession and a collapse in real-estate prices, the European Central Bank said on Saturday. The results mean almost 20 billion euros ($24 billion) of funds set aside to shore up the lenders is now free for other purposes.

Talks between Greece and its international creditors are focused on post-bailout monitoring arrangements and possible measures to lighten the country’s crushing debt load. Ideas that have been floated include using funds left over from the 86 billion-euro package agreed in 2015 to buy debt held by the ECB or the International Monetary Fund.

Greek Banks' Bill of Health Frees Bailout Funds for Debt Relief

Piraeus Bank, Greece’s largest bank, came through the stress test’s adverse scenario with a common equity Tier 1 capital ratio of 5.9 percent, above the EU’s legal minimum of 4.5 percent. Piraeus said in an emailed statement it remained committed to executing a capital-strengthening plan to ensure it continues to remain above the requirements at all times. The other big lenders also kept their CET1 levels above water:

  • National Bank of Greece: 6.9 percent
  • Eurobank Ergasias: 6.8 percent
  • Alpha Bank: 9.7 percent

Among the challenges facing Greek banks are Europe’s highest levels of nonperforming loans, at nearly 50 percent of total loans.

The ECB’s supervisory arm ran into a barrage of criticism from Italian banks and policy makers last year when it came out with proposed provisioning deadlines for future nonperforming loans. The supervisor stuck to its guns and issued the guidance in March. Now it’s considering what further action to take, if any, on banks’ existing stock of bad loans.

Greek banks were hit hard as the country lost a quarter of its economic output in a crisis and underwent the world’s biggest sovereign-debt restructuring in 2012. They were shuttered for three weeks in 2015 after brinkmanship between Prime Minister Alexis Tsipras and Greece’s creditors brought the financial system close to collapse. When they reopened, capital controls were in place and Tsipras had agreed to the country’s third bailout.

That package earmarked 25 billion euros for recapitalizing the banks, which raised capital following stress tests at the end of 2015. Most of that new money came from private investors, with only 5.4 billion euros of public funds needed.

Crucial to reaching a debt deal will be whether the IMF, which has takes a hawkish stance on Greek banks’ capital needs, factors the stress-test results into its debt-sustainability analysis. The IMF previously assumed that the lenders would need an additional 10 billion euros.

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