BUSINESS

Three obstacles left on road to completion of lenders’ stress tests

By Yiannis Papadoyiannis

The results of the credit sector’s stress tests conducted by the Bank of Greece and BlackRock Solutions are expected by the end of the month, provided negotiations with the country’s creditors on the issue are completed.

The new law on the share capital increase of the systemic banks will follow, but Finance Ministry sources tell Kathimerini that there needs to be at least a sense of the level of the funds required before the new framework for the capital increases of the banks is set in stone.

However, according to all indications, the distance between the government and its creditors on the credit system is large enough to have forced the delay to the publication of the results, originally scheduled for end-December.

For the completion of the stress tests there needs to be agreement on three key points. The first concerns the threshold of the capital adequacy index that Greek banks must reach in order to pass the exercise successfully. Greek authorities want the capital adequacy threshold at 8 percent, as is the European Central Bank’s Core Tier 1 index threshold. Greek banks currently have to reach a 9 percent reading. Furthermore, in the adverse scenario of the exercise, Greece wishes to have a 6 percent index threshold, the same as for the rest of the eurozone, against the 7 percent level used in the previous BlackRock stress test.

The second point concerns the handling of deferred tax assets, which the Bank of Greece recently acknowledged in its entirety as part of the banks’ assets, compared with just 20 percent up until a few days ago. However, many analysts consider the incorporation of 100 percent of the deferred tax assets in the stress test results particularly difficult due to the Basel III rules, dictating that deferred tax cannot exceed 10 percent of Tier 1 capital.

The last point is whether the basic or the negative scenario will be used to determine the capital requirements of banks, as in case that the negative scenario is chosen, it won’t just be Eurobank that may need additional funds. It will all boil down to whether the government is able to tap the 9 billion euros in unused funds from the recapitalization process, or if will have to leave it as a safety buffer for future needs.

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