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06 March 2014

BoG: 2013 Stress test of the Greek banking sector - Top banks need €6.4 billion in extra capital


Greece's major banks must raise an extra €6.4 billion in capital to make themselves strong enough to deal with the fallout from future crises, the central bank said.

Over the past few years, the Bank of Greece, in close cooperation with the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), successfully completed an ambitious programme for the restructuring of the banking sector, through the creation of a strong, efficient and viable banking system.

In this new environment, the Bank of Greece conducted a follow-up stress test, as envisaged in the Memorandum. For the purpose of the exercise, the Bank of Greece adopted a rigorous approach, in order to ensure that the results would be sufficiently conservative, using the results of the independent diagnostic study conducted by BlackRock Solutions on banks’ loan portfolios. It should be noted that the new BlackRock study was more comprehensive in terms of methodology, samples and analysis than the 2011 exercise.

The report describes in detail the impact on estimated capital needs of banks for 2013-2016 using (i) credit loss projections on total loans granted in Greece and abroad and (ii) the estimated operating profitability of banks, based on a conservative adjustment of restructuring plans submitted by banks to the Bank of Greece during the fourth quarter of 2013. In carrying out the exercise, the Bank of Greece was supported by leading consulting and auditing firms, namely BlackRock Solutions, Rothschild and EY.

The capital needs of all Greek commercial banks were estimated on the basis of the Baseline Scenario at €6.4 billion. The Bank of Greece considers, under reasonable levels of economic uncertainty, that the estimated capital needs for the time horizon of the exercise (June 2013-December 2016) will be covered by capital buffers already incorporated in the exercise, banks’ mitigating actions (e.g. private sector participation in future capital increases, Deferred Tax Assets allowance, potential assets sale, etc.) and the untapped part of the Hellenic Financial Stability Fund’s backstop facility. Furthermore, the Bank of Greece asked banks to submit, within a reasonable time frame – at the latest by mid-April, their capital enhancement plans and relevant timeline on the basis of the capital needs under the Baseline Scenario.

Press release

Report

The methodology used by BlackRock Solutions to carry out the diagnostic study


The results of the health check, which were broadly in line with expectations of €5.8-6.2 billion, will only stand for the next seven months, since European authorities have just kicked off an EU-wide review of banks' capital levels that will supersede national versions.

The European Central Bank (ECB), European Commission and International Monetary Fund, who are overseeing Greece's sovereign bailout, did not sign off on the test results, which were below the €8-8.5 billion shortfall they had estimated, according to a source.

The Bank of Greece said National Bank, the country's largest bank by assets, had a capital need of €2.18 billion, with No 3 lender Eurobank's shortfall at €2.95 billion. The stress test showed peers Piraeus Bank and Alpha Bank had smaller capital deficits of €425 million and €262 million, respectively. The Bank of Greece said banks would have up to mid-April to show how they would cover their shortfalls.

The HFSF rescue fund said it stood ready to supply capital if needed. Shortly after the results were released, Greece's No 2 lender Piraeus announced a share issue of up to €1.75 billion to boost its capital. The top four banks' existing private shareholders, who injected €3 billion in last summer's recapitalisation to keep them privately run, risk dilution if the HFSF steps in again to pick up the entire tab. The central bank has said the rescue fund has a buffer of €8-9 billion that can be used as a capital backstop.

A further recapitalisation would improve Greek banks' position ahead of the ECB's review of 128 of the eurozone's largest banks, designed to address lingering doubts about their health before it becomes their supervisor in November.

Further reporting © Reuters



© Bank of Greece


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