UPDATE 1-Deposits flew into Greek banks during Cypriot crisis

Wed Apr 10, 2013 5:21am EDT

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(Reuters) - Greek bank deposits rose by more than 1.5 billion euros in March despite fears Cyprus's banking crisis would trigger deposit outflows in other indebted euro zone economies, Greece's central bank chief said.

More than 19 billion euros have returned to Greece since mid-June last year when the election of a pro-bailout government allayed fears of a messy Greek exit from the euro zone.

George Provopoulos also said on Wednesday he was optimistic that Greek lenders Alpha Bank and Piraeus Bank would be able to raise enough capital from investors to remain in private hands after their planned recapitalisation.

"The completion of the recapitalisation process, the continuing trend of deposit returns and a gradual comeback of Greek banks and businesses to international capital markets create more favourable conditions for the economy," he said.

Greece's biggest banks need fresh funds to restore their solvency ratios after incurring losses from a sovereign debt writedown and bad loans and have been merging to survive a debt crisis that has pushed the economy into a six-year slump.

They have until the end of April to complete the process of recapitalisation, which includes the injection of funds from the country's latest EU/IMF bailout.

After their integration was suspended earlier this week, the country's largest lender National Bank and its subsidiary Eurobank will be recapitalised separately.

Provopoulos confirmed the two lenders had informed the central bank that they were unlikely to raise enough cash from private investors. The country's international lenders had raised issues concerning the size of the merged entity relative to Greece's gross domestic product (GDP).

Provopoulos reiterated that all Greek deposits were safe and fully protected regardless of amount.

The economy is in its sixth year of recession and expected to shrink 4.5 percent this year. (Reporting by George Georgiopoulos; Editing by Catherine Evans)