Troika charters map of action for credit sector

The revised memorandum of cooperation between Athens and its international creditors does not allow for the participation of entities belonging to the broader public sector in the recapitalization of the country’s credit sector, meaning that social security funds will be banned from taking part in banks’ share capital increases.

The only exception will be the participation of the Engineers and Public Works Contractors Pension Fund (TSMEDE) in that of Attica Bank. Sources say that TSMEDE managed to secure the troika’s approval to take part in Attica’s share capital increase because the fund is the bank’s main shareholder and the lender’s failure to succeed at recapitalization would have a disproportionately high impact on the fund’s wealth.

Crucially, the troika decision to leave social security funds out of the recapitalization process of other banks will mean that they will be unable to take part in National Bank’s share capital increase. While such an investment move would have been unwise anyway for the vast majority of funds due to their dire financial problems, the management of the country’s oldest lender had already prepared for such a possibility, raising the target for the participation of the private sector from 10 to 12 percent.

The revised memorandum further forbids the participation of shareholders in the increases through borrowed money or other similar practices. The process will only be conducted with shareholders who can pay in cash.

The Hellenic Financial Stability Fund (HFSF) must take measures to reduce the operating costs of the state-run Hellenic Postbank – including a significant reduction of staff numbers – and restructure its loan portfolio in order to render it more attractive to potential buyers, with the aim of having it sold by July 15. The HFSF should also have made its request for improved offers for the new Proton Bank by mid-July.

Regarding the non-systemic banks – those other than National, Alpha, Piraeus and Eurobank – the Bank of Greece and the HFSF should take all necessary action (such as splitting them into good and bad banks, as in the case of Proton) if any of them fail to secure the necessary funds for their recapitalization by end-June.

After the completion of the recap procedure, the HFSF, the Bank of Greece, the Finance Ministry and the troika will have to have reached an agreement on the new strategy for the local credit system. This strategy must include the HFSF taking steps toward the rapid sale of the shares of any systemic banks that come into its possession during the recapitalization (such as Eurobank) after failing to collect 10 percent of their increase from private parties.

The new memorandum provides that cooperative banks will need to have their legal and regulatory operation frameworks revised by mid-September, so as to align themselves with international best practices.

In cooperation with the HFSF, the Bank of Greece must also strengthen measures to reduce the significant risks associated with the deterioration of the quality of banks’ loan portfolios. In this context, by end-September, they will have to examine the efficiency of the existing legal framework with the help of an independent consultant, so as to tackle problematic elements in assets, set up indices that will monitor the evolution of problematic assets and closely monitor the banks’ policies on handling nonperforming loans.