After a three-week bank holiday, the next step for Greek financial institutions is to shore up liquidity.
Institutional Investor
July 23, 2015
By Robert Stowe England
After being shuttered for three weeks, Greek banks reopened their doors Monday. That’s hardly cause for rejoicing, though. Serious questions loom about their solvency and need for new capital, as well as the potential need for a bail-in that could wipe out some depositors, creditors and investors.
“The banks are probably insolvent,” says Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore and director of the Troubled Currencies Project, a group at Washington-based think tank Cato Institute.
Many observers take a dim view of the banks’ health. Fitch Ratings estimates that Greece’s four largest banks — National Bank of Greece, Piraeus Bank, Eurobank Ergasias and Alpha Bank — will need €25 billion ($27 billion) in new capital when they formally write off nonperforming loans and are required to increase capital reserves. The four banks, which represent 87 percent of bank assets in Greece, raised their nonperforming loan exposures by €26.6 billion for the first quarter of 2015 after adopting the European Banking Authority’s stricter definition of loan nonperformance.
That was before the bank shutdown and the government’s tense standoff with its European Union creditors, events that dealt a fresh blow to the economy and could aggravate the banks’ bad-debt problems. The Foundation for Economic & Industrial Research, an Athens think tank, predicted Thursday that the economy would contract by 2 to 2.5 percent this year and remain in recession through 2016. “I expect loan performance to have worsened further in the second quarter,” says Regina Argenio, credit analyst at Standard & Poor’s in Milan.
The government shut the banks down on June 29 to avoid a potential collapse in case of a flood of withdrawals. Deposits at Greek banks had fallen by 20 percent over the preceding six months, from €213.4 billion in November 2014 to €170.5 billion in May 2015. Capital controls remain in place. Instead of a daily withdrawal limit of €60, the cap in force during the closure, depositors can now make a single €420 weekly withdrawal. Customers are still unable to make payments or wire transfers abroad, however.
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