ECONOMY

Lenders worried about high recap bill

lenders-worried-about-high-recap-bill

The bill for the recapitalization of domestic banks will come close to the upper end of the range of 10 to 25 billion euros set aside for this process, according to estimates by credit sector sources and analysts.

Kathimerini understands that the results of the probe into the quality of the corporate loan portfolio are worse than the banks had expected, while there seems to be a similar picture emerging in loans to households: Kathimerini has been told that the European Central Bank is assessing the collateral of the mortgage loans using prices that are 30 percent lower than what the banks had proposed. Therefore, the portfolio assessment will likely generate a capital deficit of more than 10 billion euros.

On top of that will be the needs stemming from the stress tests – i.e. the analysis of the consequences that general financial conditions may have on loan portfolios and the overall capital base of the banks in the next three years. Analysts estimate that the final amount of the capital requirements could come to 20 billion euros.

Banks want to see a separation between the capital required immediately – i.e. what emerges from the loan portfolio assessment – and the funds that will be required if the economy deteriorates and the estimates of the stress tests prove correct. What the banks want in particular is that the share capital increases, as far as private sector participation is concerned, are calculated according to the current capital requirements and not those that may (or may not) emerge. The European authorities on the other hand appear to want to deal with the banks’ capital issues once and for all, pressing for a capital strengthening for the next three years so that confidence can be restored in the sector and the right conditions are created to allow for the gradual return of deposits.

Investors and private shareholders are eager to see the bank recap amount to be as low as possible, so that the value of their holdings does not completely evaporate. They stress that it is only a few months since they placed 8.3 billion euros in the banks’ share capital increases after the last stress tests.