ECONOMY

Eurobank, National Bank restructurings eliminate capital gap

Greece’s Eurobank Ergasias SA and National Bank of Greece SA should be able to cover capital shortfalls by completing their plans to cut costs and raise funds, the European Central Bank said after the two lenders flunked the regulator’s health check.

The lenders reached agreement with the European Union earlier this year to implement restructuring plans in return for capital injections during the country’s economic crisis. Taking those measures in account, a capital gap of 1.76 billion euros ($2.2 billion) at Eurobank, the country’s third-biggest lender, becomes “practically no shortfall,” the ECB said on its website yesterday. The same applies to the 930 million-euro shortfall at National Bank, the nation’s largest bank.

“Eurobank will be the biggest positive surprise as it has almost no shortfall in the dynamic balance sheet scenario, despite the largest shortfall of Greek peers in the static scenario,” Ronit Ghose and Yafei Tian, analysts at Citigroup Inc. in London, wrote in a report to clients yesterday.

The figures raised expectations in Greece that the country would be able to use its bank recapitalization fund to support the government’s efforts to emerge from its own bailout. Greek officials are trying to persuade the country’s euro-area creditors to convert funds originally earmarked for its banks into a credit line to help the nation when its bailout program ends this year.

‘Exceeds Expectations’

Greek Prime Minister Antonis Samaras said in an e-mailed statement that the ECB’s health check “exceeds expectations” and shows the country is emerging from its crisis on a solid footing. Finance Minister Gikas Hardouvelis said the results mean that the government won’t have to dip into the country’s 11.4 billion-euro bank bailout fund. Those funds can be used as backstop to cover the country’s financing needs, Deputy Prime Minister Evangelos Venizelos said.

The ECB had said that banks with eligible restructuring plans would be judged on the basis of their “dynamic” balance sheets, an approach that considers the mitigating effects of asset sales and other promised measures.

The two banks, together with Greek lenders Alpha Bank SA and Piraeus Bank SA, have already raised 8.3 billion euros since the country’s central bank published its own stress tests in March.

National Bank of Greece would have a capital surplus of 2 billion euros — once it completes the restructuring — in the ECB’s most onerous scenario, the Athens-based lender said in a statement yesterday after the ECB published the results of its yearlong review of the euro-area banking industry.

Alpha Bank passed the ECB tests, while Piraeus had raised 1.75 billion euros by the end of September, enough to cover a 660 million-euro shortfall identified by the ECB based on year- end accounts.

[Bloomberg]