Greek rescue fund worried stress test delays may deter investors

By George Georgiopoulos

Leaders of Greece's bank rescue fund are worried that lengthy talks with foreign creditors over a health check of the top four Greek banks may put off investors looking to take part in the privatization of one of the country's biggest lenders.

Uncertainty over what capital needs the four lenders may face is holding back the privatization of No. 3 lender Eurobank that would be a vote of confidence for the battered sector and its prospects to return to private hands.

The four banks are undergoing a second round of stress tests to check if last summer's 28-billion-euro ($37.89 billion) capital injection has equipped them to absorb future shocks as bad loans keep rising.

But protracted talks with the «troika» of European Union, International Monetary Fund and European Central Bank inspectors have pushed back the outcome of the tests, which were expected early last month.

The Bank of Greece has held off releasing the results as the troika has not cleared whether the capital needs will be based on a baseline or adverse scenario that assumes two more years of recession, or whether the required capital ratio can be reduced to 8 from 9 percent.

"We have expressed our concerns over the delays on the outcome of the stress tests and the resulting capital needs for the systemic banks," Christos Sclavounis, chairman of the Hellenic Financial Stability Fund, told Reuters on Thursday.

The HFSF, funded by Greece's EU/IMF bailout package, covered 25 billion out of last year's recapitalization in return for shares in the four banks, becoming their majority owner.

National Bank, Piraeus Bank, Eurobank and Alpha Bank control about 90 percent of the country's banking market after a wave of consolidation and the winding down of smaller peers deemed non-viable.

The four banks will probably need additional capital after the health check is finalized, central bank chief George Provopoulos told parliament last month. He did not provide figures or identify which lenders may need funds.

"One immediate issue has to do with the recapitalization of Eurobank, which is in advanced stages of preparation," Sclavounis said. "Clarity on this issue should be positive for the market and for investors who are maintaining a keen interest to place funds in Greece."

Eurobank plans to issue 2 billion euros ($2.71 billion) worth of new shares to boost its capital by March and attract significant private ownership. It became 95 percent-owned by the HFSF after it failed to attract private investors in its recapitalization last year.

A successful sale of a significant chunk to investors would signal their trust that Greek banks are set to emerge from a severe debt crisis and a six-year depression, betting on the economy's recovery.

The rescue fund is also nudging the troika to clear an update of the existing recapitalization framework, keen for flexibility to proceed with Eurobank's share sale at market prices as the current framework lacks clarity.

"The lack of an adequate legal framework hinders the HFSF from fulfilling its mandate to preserve the value of its assets and facilitate their return to the private sector," HFSF CEO Anastasia Sakellariou told Reuters on Thursday. [Reuters]