Greek Banks See $6.5 Billion Hit From New Accounting Rules

(Bloomberg) -- Greece’s four largest banks have reported an aggregate burden of 5.25 billion euros ($6.5 billion) to comply with new accounting rules as European stress tests loom.

The introduction of International Finance Reporting Standard 9 is forcing Alpha Bank AE, Eurobank Ergasias SA, National Bank of Greece SA and Piraeus Bank SA to increase their provisions for bad loans. The four banks have reported the effect that IFRS9 will have over the past week, with Piraeus posting an impact of 1.6 billion euros on Tuesday, the largest among the lenders.

Bank shares dropped 1.6 percent in Athens on Tuesday, after the statements announcing the impact of accounting changes.

The lenders are racing to reduce their soured debt pile ahead of a stress test on their balance sheets coordinated by the European Central Bank, which could force them to raise new funds. The IFRS9 impact is not immediate, and is expected to be phased in. Still, the new accounting rules add to the woes of the lenders as they struggle to clean up their balance sheets after the steepest economic recession in the country’s modern history.

Piraeus Bank reported that its non-performing exposures coverage will rise to 52 percent from 47 percent before IFRS9 implementation, and the provisioning level for non-performing loans will reach 82 percent. Alpha Bank said the estimated increase of provisions from the application of new standards is 8.1 percent, while for National Bank of Greece, it’s about 10.7 percent. For Eurobank, NPE provisions rise to 55.5 percent from 50.4 percent.

Greek banks have started sending data to European authorities for the stress test. Results are expected in early May, and the lenders say that no major needs for extra capital will arise, as the macroeconomic scenarios are much more lenient than in previous tests.

“For political economy as well as economic reasons, therefore, we don’t foresee the tests throwing up double digit capital shortfalls,” Eurasia Group analyst Mujtaba Rahman said in a note to clients. “Perhaps something smaller, in the range of €1-2bn.”

--With assistance from Vassilis Karamanis

To contact the reporter on this story: Sotiris Nikas in Athens at snikas@bloomberg.net.

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Nikos Chrysoloras, Keith Campbell

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