Greece’s international lenders have agreed that a lower capital ratio can be used in a second stress test of the country’s major banks, bringing it in line with a European banking benchmark, a banker close to negotiations told Reuters on Thursday.
The country’s central bank has run a second health check on National Bank, Alpha Bank, Piraeus Bank and Eurobank to assess whether last summer’s 28 billion euro recapitalization has left them capable of absorbing future shocks as bad loans keep rising.
The troika of lenders from the International Monetary Fund, European Commission and European Central Bank had wanted the test to be based on a Core Tier 1 capital adequacy ratio of 9 percent, the same as that used in the first round of domestic health checks in 2012.
That rate reflected the high rate of bad loans in Greece’s banking sector.
But the lenders agreed to cut the rate to 8 percent for the second check, bringing it into line with the benchmark used for European bank stress tests.
“The troika has agreed to a Core Tier 1 ratio of 8 percent in the baseline scenario,» the banker said.
The lower reference rate will mean lower capital needs for Greece’s four main banks.
The four are expected to need about 5 billion euros ($6.83 billion) in extra capital, two senior banking sources told Reuters last week, near the bottom of estimates that have ranged from 4.5 billion to 15 billion euros.
The troika, which met with the Bank of Greece’s top brass on Wednesday, is checking the methodology used in the stress test. The two sides are expected to hold another meeting before the results are released by late next week, the banker said.
Non-performing loans held by Greek banks rose to about 31 percent of their total loan book at the end of the third quarter last year from 29.3 percent at the end of the first half. [Reuters]