Greece's big banks must not relax efforts to reduce their bad debt after the positive outcome of a health check by the European Central Bank, a source familiar with the situation said on Tuesday, as the sector still faces challenges.
Earlier this month the country's four biggest banks emerged from an ECB stress test with no need to boost capital even when the simulation's adverse economic scenario showed they stood to lose about 15.5 billion euros of their capital by 2020.
"Now that stress test results are out, that does not mean that everything is done," the source said. "Banks must stick to their commitment to address the challenges, including a reduction of non-performing loans."
"A lot of good things have been done at Greek banks, the good outcome of the stress test did not come by chance. People were determined to address the situation."
Recapitalized three times since a debt crisis exploded in 2010, Greek banks are still burdened by 96 billion euros of sour debt. They have committed to targets to reduce that load to 65 billion euros by 2019.
"Addressing NPLs will take time, the commitment is ambitious but attainable," the source said. "We need to see a number of parameters go back to normal – deposits coming back, confidence returning and moving forward on (lifting) capital controls."
Asked if Greek banks should be thinking of strengthening their equity capital, following in the footsteps of Italy's Unicredit , which pulled off a record 13 billion euro share sale last year to fund bad loan disposals, the source said such decisions are taken by banks and not supervisors.
"I expect sooner or later there will be a number of banks that will do what Unicredit did. Its new CEO and his team decided enough was enough … and wanted to become a premium bank."
UniCredit hired former Societe Generale investment banking boss Jean Pierre Mustier in 2016 to tackle long-standing concerns over a weak balance sheet. The French banker sold assets and shut branches.
"This is also a possibility for Greek banks, not to just keep your head above water but to do much more than what regulators are asking."