After a deep, six-year recession, a pricked property bubble, withdrawals by depositors and an unprecedented €200 billion sovereign-debt restructuring, Greece's banks are struggling. This year, they were recapitalized with the help of a European Union loan, but together they still hold some €70 billion in bad loans—a sum equal to a third of Greece's annual gross domestic product.
With bad loans still rising and not expected to peak until late this year, the Bank of Greece had commissioned outside consultant BlackRock Solutions to assess the banks' loan portfolios, something the firm also did in 2011.
The new report, based on the BlackRock stress test, comes almost two years after Greece first received that EU loan—of €50 billion—to recapitalize the Greek banking system. To date, Greece has used up most, but not all, of that loan with roughly another €8 billion still held in reserve. In a statement, Greece's bank rescue fund said it was ready to support the four big banks if they ask for help.
As such, the additional capital needs shouldn't present a major challenge, and are largely in line with market expectations. Just hours after the Bank of Greece released its report, No. 2 lender by assets Piraeus Bank said it planned to raise €1.74 billion through a sale of additional shares to cover capital needs and to retire special preference shares now held by the Greek government.
On Friday, Eurobank plans to follow suit and announce a €3 billion sale of stock, an official at the bank said.
However, in an unusual step, Thursday's long-awaited report was released by the central bank here without the endorsement of Greece's troika of international creditors—currently in Athens—who say the true sum may be €2 billion to €3 billion higher.
This week, talks between the Bank of Greece and representatives of the troika—the European Commission, the International Monetary Fund and the European Central Bank—hit a rare impasse over the issue. They agreed on the goal and some of the terms of the latest stress test: that the banks needed to meet a minimum capital ratio of 8% and that Greece's economy would record a modest 0.6% growth rate this year. But the central bank and the troika remained apart in their estimates of the final capital needs.
"We say it's around €6 billion the banks need, the troika says it's under €10 billion, around maybe eight or nine billion," says a Greek official familiar with the talks. "But they won't tell us how they arrived at their estimate."
That may become clear only later this year when the ECB, which is due to take on a fresh banking oversight role beginning in 2015, runs its own independent stress tests of Europe's banks. Those tests are tentatively scheduled to take place in July, with the final results likely to be released in October or November, analysts say.
