Ratings agency Moody’s said on Wednesday it was maintaining its negative outlook on Greek banks, estimating that their prospects would remain bleak over the next 12 to 18 months.
An EU plan agreed last month to cut the country’s privately-held debt by half will make most Greek lenders, which own more than 50 billion euros of Greek bonds, insolvent, Moody’s said in a report.
Requiring between 20 and 30 billion euros of EU and IMF funds to replenish their capital, many of them will have to be effectively nationalised to be saved, Moody’s said.
This is a view long held by the markets and expressed by Greek policymakers. Greece’s banking stock index has shed 77 percent over the past 12 months on fears that a Greek debt restructuring would wipe out their capital.
Greece and its international lenders have already set aside 30 billion euros to recapitalise the lenders, under the terms of the EU’s bailout plan for the cash-strapped country.
“Moody’s expects that the ongoing deterioration in operating conditions will continue over the next 12-18 months,» the ratings agency said.
Greek banks will remain shut out of wholesale debt markets and scared savers will continue withdrawing deposits, Moody’s said.
Greek recession, currently in its fourth consecutive year, will likely drive Greek lenders’ non-performing loans to 16 percent by the end of 2011 and beyond 20 percent over the next 18 months, the ratings agency estimated.