The impact of the current financial turmoil and the capital controls on nonperforming loans as well as the issue of deferred tax assets will to a great extent determine the final bill for the recapitalization of Greece’s four systemic banks.
International rating agency Fitch estimates that the capital requirements of local lenders will range between 11 and 16 billion euros but bank officials note that any effort to calculate the sector’s needs would be premature and not based on actual data.
Senior officials from National Bank, Alpha, Piraeus and Eurobank visited Frankfurt on Friday to meet with officials from the Single Supervisory Mechanism (SSM) of the European Central Bank. The aim of the European authorities is for a study on the state of local banks and stress tests that will determine the level of capital requirements are conducted rapidly so that the share capital increases are completed by the end of this year.
ECB governing council member Christian Noyer said in an interview on Friday that Greek banks should get an immediate injection of capital, before this fall’s stress tests, for the sector to become stable. He also opposed the idea of a bail-in as happened in Cyprus in 2013, arguing that most Greek deposits above the guarantee limit of 100,000 euros concern small and medium-sized enterprises.
Fitch noted that the total amount proposed of 25 billion euros for the Greek bank recap is sufficient unless deferred tax assets stop being considered as core capital. According to Fitch, 45 percent of the four systemic lenders’ core capital consists of deferred tax assets. The agency estimated the capital requirements at 11.2 billion euros on the condition that nonperforming loans amount to 52 percent of loan portfolios, while the adverse scenario seeing bad loans at 60 percent would entail capital needs of 15.9 billion euros.
In any case the level of the banks’ needs will not only depend on the consequences of the current crisis and uncertainty on banks and enterprises, but also on the macroeconomic projections of the ECB on the course of the Greek economy in the next few years.