Banks seek unused stimulus funds

Greek lenders are turning to the government for help from a 28-billion-euro stimulus plan to increase capital levels, Finance Minister Giorgos Papaconstantinou said yesterday. The banks will use the stimulus program, set up by the previous conservative government, to create «extra certainty» about their finances, Papaconstantinou told reporters. Greek lenders tapped the state plan last year to boost capital and liquidity amid the economic crisis but not all the funds were taken up. National Bank and Piraeus Bank posted losses in the fourth quarter after loan impairments soared. Earnings at the country’s banks may suffer this year as government measures aimed at slashing the fiscal deficit curb loan demand and drive up defaults. «We understand that banks will use the aforementioned liquidity as a safety net rather than a mechanism to supply liquidity to the economy,» Louis Nikolopoulos, an analyst at Marfin Analysis, wrote in a note. Greece announced the stimulus measures in October 2008 to keep credit flowing into the economy. It included up to 5 billion euros earmarked for purchases of preferred shares, as much as 15 billion euros to back new bank loans or refinance existing ones, and 8 billion euros of special state bonds to boost liquidity. The banks’ request for more help highlighted the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year, partly as a result of austerity measures imposed to slash a huge budget deficit. International Monetary Fund officials began talks in Athens yesterday on implementing the austerity plan as investors remain nervous about Greece’s ability to manage its debt mountain and uncertainty over a eurozone rescue plan. Greek borrowing costs rose again yesterday on the back of investors’ skepticism about an EU-IMF financial safety net agreed last month. The spread on 10-year Greek government paper over German Bunds widened to 412 basis points from 409 bps on Tuesday. IMF experts are providing advice to Athens on implementing public spending cuts and revenue increases designed to cut the budget deficit by 4 percentage points to 8.7 percent of gross domestic product. The IMF mission, which is not expected to discuss loans, comes ahead of the next joint assessment of Greece’s progress by the European Commission, the ECB and the IMF due later this month. Cash outflows only minor Greek businesses and households withdrew only small amounts of cash from the country’s banks in February, according to data released yesterday. The figures contradict recent press reports claiming that Greek lenders recently saw large cash outflows as depositors fear the impact the crisis may have on the banking system. The Bank of Greece said deposits at Greek banks fell 1.4 percent to 229.5 billion euros in February compared to a month earlier. Relative to the same month last year, household and business deposits were flat – standing at 229.4 billion euros in February 2009. The data showed a decrease of 8.4 billion euros in the first two months of this year. Bankers say this drop may be partly due to seasonal trends playing out and some channeling of funds to subsidiaries of Greek banks abroad, amid worries about the fiscal crisis and planned tax changes. Meanwhile, Cyprus’s central bank denied its banking sector was awash with Greek cash after news reports suggesting depositors were shifting funds to the island to escape the Greek debt crisis, Reuters reported.

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