Greece's top banks need $8.9 billion euros in extra capital: central bank

BY GEORGE GEORGIOPOULOS

ATHENS Thu Mar 6, 2014 1:44pm EST

(Reuters) - Greece's major banks must raise an extra 6.4 billion euros ($8.9 billion) in capital to make themselves strong enough to deal with the fallout from future crises, the central bank said on Thursday.

A health check was run to see whether last summer's 28-billion-euro recapitalization of the four top banks had left them with enough cash to withstand rising loan losses, a further economic slump and other potential shocks.

The assessment also included smaller peers Attica Bank (BOAr.AT) and Panellinia Bank.

But the results, which were broadly in line with expectations of 5.8-6.2 billion euros, will only stand for the next seven months, since European authorities have just kicked off an EU-wide review of banks' capital levels that will supersede national versions.

The European Central Bank (ECB), European Commission and International Monetary Fund, who are overseeing Greece's sovereign bailout, did not sign off on the test results, which were below the 8-8.5 billion euros shortfall they had estimated, according to a source.

The Bank of Greece said National Bank (NBGr.AT), the country's largest bank by assets, had a capital need of 2.18 billion euros, with No.3 lender Eurobank's (EURBr.AT) shortfall at 2.95 billion euros.

The stress test showed peers Piraeus Bank (BOPr.AT) and Alpha Bank (ACBr.AT) had smaller capital deficits of 425 million euros and 262 million euros respectively.

The Bank of Greece said banks would have up to mid-April to show how they would cover their shortfalls.

To replenish their capital, banks can divest assets, tweak business plans to extract more cost savings, proceed with cash calls or resort to the country's bank rescue fund (HFSF), the majority owner of the top four lenders.

"When the capital need is large there is only so much you can do before having to tap the market," said a senior banker at one of the banks, who declined to be named.

SHARE ISSUE

The HFSF rescue fund said it stood ready to supply capital if needed. Shortly after the results were released, Greece's No.2 lender Piraeus announced a share issue of up to 1.75 billion euros to boost its capital.

The top four banks' existing private shareholders, who injected 3 billion euros in last summer's recapitalization to keep them privately run, risk dilution if the HFSF steps in again to pick up the entire tab.

The central bank has said the rescue fund has a buffer of 8-9 billion euros that can be used as a capital backstop.

A further recapitalization would improve Greek banks' position ahead of the ECB's review of 128 of the euro zone's largest banks, designed to address lingering doubts about their health before it becomes their supervisor in November.

The Greek central bank's health check was based on BlackRock's loan-loss projections, which also looked into the loan books of banks' major foreign units in the Balkans.

The Bank of Greece also used Ernst & Young and Rothschild as external advisers on the health check.

Credit risk remains the biggest risk to profitability and capital. Based on central bank data, the banking system's non-performing loans hit 31.2 percent of the total loan book at the end of the third quarter amid a deep recession.

Greece and its international lenders expect the economy to pull out of a six-year depression this year and grow by 0.6 percent. Bankers expect bad loans to peak this year.

($1 = 0.7225 euros)

(Editing by Deepa Babington and Pravin Char)