ECONOMY

ECB sets higher capital hurdle for Greek banks in stress tests

ecb-sets-higher-capital-hurdle-for-greek-banks-in-stress-tests

The European Central Bank has set the capital threshold that top Greek banks must meet in a stress test higher than in earlier eurozone wide health checks, a source close to the matter said on Tuesday.

That would potentially require them to raise billions of euros in extra capital.

The ECB is testing Greece's four largest banks — National Bank of Greece, Piraeus, Eurobank and Alpha — to determine how much capital they need after the recent downturn in the Greek economy.

The minimum Core Equity Tier 1 level has been set at 9.5 percent in the ECB's baseline scenario based on a normal outcome and 8 percent in its 'adverse' or stress scenario, the source said on Tuesday.

During the 2014 regional stress tests, the CET 1 capital hurdle, which is the purest measure of a bank's financial strength, was set at 8 percent for the 'baseline' case and at 5.5 percent for the adverse outcome.

According to Greek brokers Alpha Finance, every 50 basis points on the minimum CET1 ratio translates into a 1 billion euro ($1.14 billion) capital need for Greece's four largest banks.

"I personally believe that there will be pressure (for tough capital requirements)," said Silvia Merler, an economist at the Bruegel think tank. "If there were to be such differences, the boundary between technical and political could get blurry."

Under an international bailout agreed last summer, Greece is set to receive up to 25 billion euros of public money to recapitalise its banks, many of which are partly state-owned and have been left with few private stakeholders to 'bail in' by converting their claims to equity.

The head of the Greek banking association told a German newspaper she did not think that Greek banks would need all of the 25 billion euros, adding it was possible that private investors would contribute between 5 and 6 billion euros.

Athens must enact a long list of reforms detailed in the 86-billion-euro bailout plan to unlock the funds and recapitalise its banks.

[Reuters]