Local banks prepare for stress tests

Local banks prepare for stress tests

Greece’s banks remain cautiously optimistic about the capital requirements that impending stress tests will reveal.

The assumptions of the baseline scenario, which predict an economic downturn of -2.3 percent for 2015, -1.3 percent for 2016 and growth of 2.7 percent in 2017, were provided by the European Central Bank to Greek banks last week.

Greek banks have until Thursday to submit the first assessment of the impact of these assumptions on their loan portfolios to the ECB.

The stress tests are being carried out in parallel with an asset quality review of the loan portfolios of banks which began this month. The audit is based on data reported on June 30 and random checks on household and business loans.

Both reviews are expected to be completed before the end of October for bank recapitalization to take place in November and December. The aim is to avoid triggering the 2016 directive of a bail-in of depositors, a scenario that was recently ruled out in a Eurogroup announcement.

The bail-in could potentially apply to senior debt bondholders but not ordinary shareholders.

The agreement between Greece and its partners for the recapitalization of domestic banks provides for the allocation of up to 25 billion euros. The first tranche of 10 billion euros will be paid into a special bank account, while the second will be released according to the results of the stress tests.

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