BlackRock Solutions will submit the eagerly awaited results of the stress tests on Greek bank loan portfolios to the Bank of Greece on Friday, while the governor of the BoG has scheduled a meeting with the heads of the four commercial lenders to discuss their restructuring plans and management of nonperforming loans.
The country’s central bank will start processing the stress test results from Monday in order to determine the final level of each lender’s capital requirements. The BoG aims to publish its report on the credit sector’s requirements by the end of the year.
>BoG analysts will take into account five crucial factors in order to establish the requirements of each bank. The first concerns their capital strength, as the stronger each bank’s capital base, the better it can withstand any future problems.
The second factor is the stock of provisions for nonperforming loans. Banks have already set aside particularly high provisions as a safety cushion to deal with the major increase in bad loans.
Another factor is operating profits, as the earnings before provisions banks will secure in the next three years will create additional stock that can be used to face a further increase in bad loans. The ongoing reduction in interest rates along with the steady improvement in the financial climate are creating expectations that operating profits will grow considerably.
The fourth factor is the creation of internal capital, which banks can secure through their restructuring and reorganization moves that their business plans provide for. Alpha, National, Piraeus and Eurobank will proceed to the sale of subsidiaries, real estate and other assets in order to strengthen their capital bases. Finally, banks are expecting significant benefits from the synergies stemming from the absorption of several smaller lenders completed in the last few months.
The Bank of Greece will deduct from the lenders’ capital needs the total benefits they will reap from the above factors, with credit institutions hoping to be judged on the same capital adequacy ratio as other European banks (8 percent) instead of the 9 percent that the country’s bailout agreement provides for.
Greek authorities support the banks’ demand, but Greece’s creditors are yet to give their consent. Bank officials say that such a move would release funds of 2 billion euros that could go directly into the cash-starved market.