ECB said to increase capital demands for Greek bank stress tests

ECB said to increase capital demands for Greek bank stress tests

The European Central Bank may increase the minimum regulatory capital that Greek lenders are required to hold to pass their latest stress tests, according to an Athens- based official with knowledge of the matter.

The ECB may set the pass mark for adjusted common equity Tier 1 capital at 9.5 percent in a baseline scenario and at 8 percent in an adverse environment, said the person, who asked not to be named because the process isn’t public. In last year’s pan-European test, the pass marks were set at 8 percent and 5.5 percent respectively.

Increasing the thresholds would mean that lenders may have to raise more capital from shareholders and bondholders. As much as 25 billion euros ($28 billion) from Greece’s latest bailout has been earmarked to backstop the recapitalization of banks, and euro area finance ministers said in August that senior bondholders may have take losses before public money is used.

Officials at the Bank of Greece and the ECB declined to comment on the regulatory capital requirements.

All four Greek banks that were tested last year – the National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE- cleared the hurdle thanks to capital increases earlier in 2014 and restructuring plans approved by the European Commission.

Results of the current exercise, which also consists of an asset quality review, will be published around the end of October, according to the Hellenic Financial Stability Fund, the state-owned entity that is the biggest shareholder in the four lenders.

Having lost more than 43 billion euros of deposits in the past year amid doubts about Greece’s place in the currency bloc, the nation’s banks are now kept afloat by almost 90 billion euros of emergency liquidity extended by the ECB. The lenders shut down in July following Prime Minister Alexis Tsipras’s decision to hold a referendum over the terms attached to the country’s bailout. While they have now reopened, capital controls, imposed on June 29, remain in place.

Greek bank shares fell 3 percent at 3.37 p.m. in Athens today, while they have lost almost 80 percent of their market value since the beginning of the year.


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