Banks set the rescue ball rolling

Eurobank and Piraeus Bank, two of Greece’s largest lenders, are the first companies to get a liquidity boost as part of the state’s 28-billion-euro plan aimed at ensuring the flow of credit in the economy. Eurobank and Piraeus, the country’s second- and fourth-largest lenders respectively, are expected today to borrow some 2 billion euros from the European Central Bank against state bonds they will deposit with the ECB. The three-year zero coupon bonds have been specially issued by the Greek government for lenders to borrow against and will be returned to the state upon completion of the program. The capital injection scheme, which the government says is designed primarily to cushion the effect of global financial turmoil in the country by keeping loans flowing through to small businesses and households, provides as much as 15 billion euros to fund new bank loans or refinance existing ones. The government has also earmarked up to 5 billion euros in order to purchase banks’ preferred shares as part of its plan. Under the terms of the scheme, banks that decide to participate will be subject to restrictions on pay, bonuses and dividends. National Bank is expected to hold a board meeting in the first week of January to propose a 350-million-euro share capital increase through the issuance of preferred shares. An annual general meeting is expected to be held by the lender at the end of January to ratify the move. The country’s banks had initially refused to participate in the plan, but have since changed their minds, citing growing competition and rising capital adequacy requirements. Lenders have until February 1 to decide if they will make use of any of the plan’s facilities. Small and medium-sized businesses have accused banks of turning off the lending tap recently, leading to credit asphyxiation in the market.

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