Banks feel bailout tranche presents major opportunity

The planned recapitalization of the credit sector is paving the way for the improvement of cash flow in the market, while the small but steady return of deposits is contributing to the stabilization of the system after a tough period.

Bank officials say that on a daily basis some 40, 50 or even on some days 100 million euros return to the local banking system in the form of deposits, putting an end to a long period of outpour that peaked around the two general elections in May and June.

Bank of Greece data show that since the formation of the coalition government – in July-September – deposits have grown by about 5 billion euros, while bank officials estimate that today growth has reached as high as 7 billion euros.

However, the big difference will be made by the disbursement of the next bailout installment. Besides reinstating banks’ capital adequacy with the second part of the recapitalization, worth some 24 billion euros, the bailout tranche will also allow for the gradual repayment of treasury bills, whose balance had come to 18 billion euros at the end of September.

The terms for the disbursement of the bailout tranche also provide for the gradual repayment of the state’s debts to the private sector, amounting to over 8 billion euros. Some of that is set to return to the banking system in the form of deposits.

Once the tranche is paid, probably next month, the country’s four main banks will be considered as good as recapitalized and will be able to return to the main funding tools of the Eurosystem. At the moment, the door of the European Central Bank is shut to Greek lenders, which can only draw liquidity from the Bank of Greece’s emergency liquidity assistance (ELA) mechanism.

Bank officials note that the reactivation of the country’s funding program is opening a window of opportunity, as the risk of a return to the drachma will be banished for good and cash flow conditions will be sharply improved in the local market. If this opportunity is also used for the implementation of structural changes and reforms, then the disbursement of the tranche could signal a historic turning point for the country’s economy.

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