ECONOMY

Confident banks point to solid capital levels

Local bank officials are confident that Greek lenders will pass the next round of stress tests being conducted by the European Bank Authority (EBA) without difficulty.

With capital sufficiency indices among the highest in Europe, the country?s lenders are well supported by their capital positions.

This allows banks to absorb shocks created by worsening economic conditions, as included in the stress tests.

According to the Bank of Greece, lenders increased their capital significantly in 2010 (via rights issues, the sale of assets etc) and at the end of December the capital adequacy ratio rose to 13.8 percent, from 12.2 percent at the end of 2009.

Stress tests do not include the extreme scenario of a country declaring bankruptcy and this is important for Greek lenders due to their large exposure to Greek government bonds (estimated at some 45 billion euros).

Banks are not forced to show non-realized losses from Greek bonds on their books as international accounting standards allow government paper to be priced at the acquisition price.

If bonds were to be valued at current levels, then local lenders would show large losses and capital adequacy ratios would deteriorate considerably, putting at risk the the ability of lenders to pass stress tests.

According to a report prepared by investment bank Morgan Stanley, Alpha Bank is among the European lenders that need a capital boost. Morgan Stanley assessed 22 European banks that took part in the 2010 stress tests and pointed out that 17 of them had completed a share capital increase while five had not done so: Erste, Raiffeisen (Austria), UniCredit (Italy), Espirito Santo Financial Group (Portugal), and Alpha Bank (Greece).

Alpha Bank says that it had gone ahead with a large share capital increase at the start of the crisis and that it has sufficiently strong capital adequacy indices.