BUSINESS

Bad loans cast a heavy shadow on bank recapitalization plans

By Giorgos Mantelas

The results of the European Central Bank’s (ECB) ongoing stress tests on 128 banks across the eurozone, including four Greek lenders, look like they will not be made public for some time yet. The results are officially scheduled to be announced in October but the parties involved has hoped they may receive some indication in advance as to the level of recapitalization that will be required. Sources in Frankfurt, however, suggest that no information will be imparted before September at the earliest.

In October, the banks undergoing the stress tests – among which Greece’s National, Piraeus, Alpha and Eurobank – will receive analytical reports and will have to submit proposals within 15 days as to how they plan to cover any capital gaps. They will have to implement these measures within six to nine months.

There is a strong belief in Athens that the total figure for Greek banks “will be small and manageable.” This means a sum less than 4 billion euros, though judging from past stress tests – when the ECB refuted both over- and underestimates by suggesting the figure would be “somewhere in the middle” – it is likely the figure will be closer to the 5-billion-euro mark. This too is considered manageable.

The main worry for banks lies in the area of non-performing loans, the sum total of which is estimated possibly as high as 77 billion euros, with some 43 billion euros represented by corporate loans. For this reason, the restructuring of the country’s business sector looks all the more urgent. Bankers suggest that this has already started with the most problematic sectors, namely fish farming and coastal shipping, which are heavilly laden with loans.

According to one of the most likely solutions being examined, if the majority of lenders to an enterprise agree, its restructuring can go ahead – instead of requiring an overall consensus. And, most importantly, the process will not be subject to vetoing by the enterprise itself, as was the norm in the past.

Online