Bank stress tests ‘encouraging’

Greece’s lenders able to survive harsher economic conditions, says Bank of Greece; nonperforming loans rising

By Stelios Bouras - Kathimerini English Edition

The fundamentals of Greece’s banking system are healthy and the sector could withstand further severe economic shocks, according to the results of the Bank of Greece’s stress tests on lenders.

“The results of the stress tests were encouraging,” said the country’s central bank in a statement.

“Results showed that the banking sector is in a position to handle particularly intense shocks, which have exceptionally little likelihood of appearing.”

The Bank of Greece, which prepared the tests in cooperation with the International Monetary Fund (IMF), assessed the impact that harsher conditions would have on the nonperforming loans, market risk and the liquidity of banks. Scenarios included negative annual economic growth of 3 percent over two years, an increase in unemployment of 4 percentage points and a 400-basis-point increase in interest rates. Concerns about the health of the local financial system have risen as the economy slows and a growing number of households struggle to meet monthly loan payments.

As Greece’s 250-billion-euro economy heads for a recession this year, according to the European Commission, data from the central bank show nonperforming loans rose to 6 percent at the end of the first quarter, up from 5 percent at the end of 2008.

The rising number of delayed loan payments calls for “increased vigilance” by lenders, the Bank of Greece said. Despite deteriorating economic conditions, bank shares on the Athens bourse have gained 55 percent over the last three months, versus a 28 percent rise on the broader market.

In response to current conditions, National Bank, Greece’s largest lender, has announced a 1.25-billion-euro rights issue to boost its capital and prepare for possible buyout activity abroad. Other top lenders – including Eurobank, Alpha and Piraeus – have said they will not follow in National’s steps to boost share capital. sbouras@ekathimerini.com