IMF Says Greek Banks May Need More Capital Than Estimates Show

Greek banks may need more capital than current estimates suggest, European and International Monetary Fund officials said as they reached a preliminary agreement to unblock money under the Mediterranean nation’s bailout.

“We take note of the stress test results and attendant capital needs estimates by the Bank of Greece,” the International Monetary Fund, the European Central Bank and the European Commission said yesterday in a joint statement. “However, according to the assessment of the mission teams, there are upside risks to the capital needs estimates, in particular, if the authorities and banks do not urgently and efficiently address the high level of non-performing loans.”

The so-called troika of creditors is trying to return Greece to fiscal and financial health after a crisis that nearly pushed the country out of the euro monetary union and shrank its economic output by about a quarter since 2008. The Greek central bank earlier this month estimated that the country’s lenders needs an additional 6.38 billion euros ($8.82 billion) in capital.

“The envisaged injection of fresh private capital into the Greek banks is a sign of confidence and will help to strengthen the private management” of Greek banks, the IMF and European officials said. “The Bank of Greece should remain vigilant in its oversight of the banking system and proceed forcefully in requiring banks to quickly work out their large stock of problem assets.”

Bonds Sold

Piraeus Bank SA sold 500 million euros of bonds this week in the first public debt sale from a Greek lender since 2009, according to data compiled by Bloomberg, while Infrastructure Minister Michalis Chrisochoides predicted the country may also sell bonds before May.

The banking stress test was among sticking points that dragged discussions under the 130 billion-euro bailout package well past the scheduled deadlines for completing talks. The IMF board and euro-area finance ministers are now expected to consider a formal approval in coming weeks, according to the statement.

“We have concluded the work at this stage in order to assure the financing for 2014, that’s a major breakthrough,” Olli Rehn, the EU’s economic and monetary affairs commissioner, said in an interview in Brussels yesterday.

Fiscal Target

The troika officials said they believe Greece can meet its 2014 fiscal target.

They said the Greek government plans to post a budget surplus, excluding interest payments, amounting to 3 percent of the country’s economy.

“The authorities are making progress on structural reforms to improve the growth potential and flexibility of the Greek economy” and have pledged more efforts in fields including food processing, tourism and retail, the creditors said.

They agreed “to revitalize the privatization of other corporate and real estate assets, which would provide needed financing to the state while unlocking investment,” according to the statement.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Gail DeGeorge, Mark Rohner

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