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Greece’s return to bond market eased by banks, Provopoulos says

Nikos Chrysoloras & Christos Ziotis

Greek lenders’ success last month in raising funds from foreign investors shows the government can reach its goal of returning to bond markets, said George Provopoulos, the country’s central-bank chief.

“The successful restructuring of the banking system and the recapitalization of banks from the market following the latest stress-test exercise have facilitated the way for the Greek government to tap the market,” Provopoulos, who is also a member of the European Central Bank’s Governing Council, said in an interview in Athens on Tuesday.

Piraeus Bank SA and Alpha Bank AE last month raised nearly 3 billion euros ($4.1 billion), mostly from foreign investors, to plug a capital shortfall the Bank of Greece identified in a stress test. Piraeus also sold 500 million euros of three-year bonds, in the first public debt sale by a Greek lender since 2009.

Greece won approval this month from euro-area members for an 8.3 billion-euro aid payment, the first disbursement from its bailout program since December. The government and European Union predict that Greece will emerge in 2014 from six years of recession.

Two other lenders, Eurobank Ergasias SA and the National Bank of Greece SA, need to raise 2.95 billion euros and 2.18 billion euros respectively, according to the national regulator’s stress test, which was based on an asset-quality review by BlackRock Inc.

Provopoulos, 63, said discussions between the central bank and Eurobank’s potential “anchor investors” are near completion, as the country’s third-biggest lender by assets prepares to raise the capital it needs through a private placement by the middle of next month.

The central bank is likely to approve the Eurobank deal, Provopoulos said. He declined to comment on the shortfall for National Bank of Greece, which is required to submit a capital- raising plan later this month.

As the Greek economy contracted for six straight years, non-performing loans ballooned to 31.7 percent of total lending at the end of 2013, according to data provided by the Bank of Greece. Provopoulos forecast that NPLs will peak at the end of 2014, “provided economic activity continues to improve as expected, with GDP rising modestly this year.”

Greek lenders are now among the best-capitalized in Europe, he added, citing the drop in ECB funding. “It will be further reduced as Greek banks continue to regain access to markets,” Provopoulos said.

The next challenge for the country’s financial system will be to bolster the economic recovery, Provopoulos said.

“Banks should now support the reorientation of the economy toward production of tradable goods, which will boost net exports and help generate sustainable growth,” he said.

Greek lenders will face renewed scrutiny in a euro-area asset-quality review and stress test being conducted by the ECB through October. The health checks are part of the ECB’s Comprehensive Assessment before it becomes the region’s bank supervisor in November.

“The Bank of Greece eliminated the excess supply in the Greek banking sector,” said Provopoulos, who has shuttered 12 banks during his tenure. “We designed and implemented a pioneering resolution law, and now this is also happening at the European level.”

Greek lenders “most probably” won’t have to use reserves from the country’s bank-recapitalization fund, which currently stands at 11 billion euros, the central bank chief said. The fund maybe used to reduce Greek public debt if its still not been used in a year’s time, he added.

Asked to comment on his own future, Provopoulos said “the record of my performance is there for everyone to see and judge. It is up to the Greek Prime Minister to decide whether to renew my term,” which ends in June.

The Greek economy still faces challenges including deflation. Consumer prices calculated using a harmonized EU method dropped 0.9 percent in February from a year earlier for the 12th straight month of declines.

Euro-area inflation was 0.5 percent in March, well below the ECB’s goal of just under 2 percent, prompting President Mario Draghi to say policy makers are ready to use unconventional tools including quantitative easing if needed.

“We are reflecting on the design of a quantitative-easing program in the euro area,” he said. The Governing Council has “unanimously committed to using all instruments within its mandate, conventional and unconventional, to deal effectively with the risks of a too-prolonged period of low inflation.”

[Bloomberg]

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