NEWS

D-Day for Greek banks looms in aftermath of austerity referendum

CONSTANTINE COURCOULAS & CHRISTOS ZIOTIS

TAGS: Referendum, Banking, Euro

The chairman of Greece’s biggest bank put an end to the speculation about how long the nation’s crippled lenders can function after Sunday’s referendum.

Without a fresh injection from the European Central Bank -- or a reduced ceiling on withdrawals -- ATMs will start running dry within hours of the vote, according to Louka Katseli, chairwoman of the National Bank of Greece.

“Liquidity is adequate through the end of the bank holiday” that’s due to end Monday night, Katseli told reporters Friday as she left meetings at the Finance Ministry. Asked whether developments depend on the ECB, Katseli said “yes.”

The parlous condition of the finance industry explains the urgency of Sunday’s vote on accepting the budget cuts Greek creditors demand. Rejecting the terms, as the government wants, would endanger the ECB loans that have kept banks afloat. It also risks Greece’s exit from the euro. Central bank officials will consider the Emergency Liquidity Assistance on Monday.

“After a ‘no’ vote, ELA could be stopped on Monday, triggering a very rapid default of Greek banks,” said Jerome Forneris, who helps manage more than $8 billion at Banque Martin Maurel in Marseille.

Even if Greeks vote “yes,” the government in Athens will have to extend the six-day bank holiday and keep capital controls to prevent a run on deposits, said Demetrios Efstathiou, a strategist at ICBC Standard Bank in London.

“They may well stay closed for a month,” he said in a phone interview. “And when they do reopen, capital controls will almost certainly still be in place.”

A Bloomberg News poll published Friday showed the race as too close to call.

When Prime Minister Alexis Tsipras shut the banks on June 29, daily ATM wihdrawals were limited to 60 euros ($67) and pension payments were rationed.

The controls are fueling a fight over Greece’s dwindling cash. Drug and food companies are seeking exemptions from Bank of Greece Governor Yannis Stournaras.

Greece needs to make sure that “at least these two sectors will find solutions,” said Constantine Michalos, president of the Athens Chamber of Commerce, who estimates the country has only about 500 million euros in cash reserves left in its banks. That wouldn’t have covered last weekend’s ATM withdrawals.

Katseli put the remaining liquidity buffer at about 1 billion euros.

The country’s missed payment to the International Monetary Fund jeopardized the one asset that hasn’t been discounted: the government guarantee that it’s good for its debts, further complicating the ECB’s role as a lender of last resort.

Through the week, government officials have denied speculation that deposits will be seized, with the Finance Ministry overnight rejecting a Financial Times report that such a plan was in the works.

Finance Minister Yanis Varoufakis insists that banks will be able to open without difficulty on Tuesday. In an interview Thursday, he blamed creditors for shutting them down and accused them of making up rules as they go along.

“Once the political crisis is over, after the Greek people deliver their verdict, banks will open,” he said.

Capital controls prevented the collapse of the four biggest Greek banks, according to Fitch Ratings.

Still the blow could throw into question their solvency and capital adequacy, according to JPMorgan Chase & Co. analysts.

“The current payment freeze is raising the risk that a material portion of currently overdue loans, between 50 billion euros and 60 billion euros, according to press reports, could become non-performing,” analysts including Nikolaos Panigirtzoglou wrote in a note on Friday.

The banks have been locked out of standard ECB refinancing operations since February, running up a tab of 89 billion euros in Emergency Liquidity Assistance. The ECB froze the ELA on June 28, prompting the bank holiday and controls.

[Bloomberg]

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