The combined losses of domestic banks due to bad loans in Greece and abroad add up to a staggering 46.8 billion euros, while the recapitalization needs of the local credit sector are estimated at over 40 billion, the Bank of Greece announced on Thursday.
The report on the recapitalization and restructuring of the Greek banking sector drawn up by the country’s central bank estimates the credit risk as defined by the BlackRock evaluation at 36.8 billion euros, while another 8.2 billion euros comprises losses from portfolios of loans abroad and 1.8 billion euros from loans to companies related to the Greek state. This 46.8 billion along with the 37.7 billion euros from the debt restructuring (PSI) in March add up to losses of an unprecedented 84.5 billion euros, which amounts to 42 percent of the country’s gross domestic product.
Losses are offset to a great extent by provisions (30.5 billion euros) and the expected profits for the 2012-14 period (11.4 billion), but this is not enough to save shareholder capital. The crisis has wiped out the bank shareholders’ entire capital of 22.1 billion euros and, after factoring in the PSI and the credit risk, the net position of the Greek banking system is at -20 billion euros.
As a result, the lost capital will have to be replaced with new funds of 40.5 billion euros to bring the banks’ capital adequacy rate back to 9 percent by end-2014. In terms of assets, the four major banks (National, Alpha, Eurobank and Piraeus) were 8.1 billion euros in the red at the end of the year’s third quarter on a bank level and -4.5 billion on the group level. To cover the lost capital and align capital adequacy with BoG requirements, the four major lenders will require 27.5 billion euros.
BoG also estimates that besides the 40.5 billion euros, the recapitalization and sanitization of banks that have already been completed (concerning ATEbank, Proton, T-Bank, cooperative lenders and the sum of the funds that French parent companies paid for Emporiki and Geniki) had an impact of 1.4 billion euros. Another 3.1 billion will be required for the restructuring of smaller and cooperative banks.
The capital requirements may grow depending on the deterioration of the financial climate, BoG stresses, as well as the recent debt buyback, but could also go down depending on the participation of the private sector in the recapitalization process.