A Greek official said the nation should clear a 18 billion-euro ($23 billion) capital boost for its four biggest banks by May 24, paving the way for a return to European Central Bank funding.
“I hope that all technical and legal issues will be resolved up to next Thursday,” Panayotis Thomopoulos, head of Greece’s bank recapitalization fund, said in a phone interview today. “After that I can release the 18 billion euros, but it takes a couple of days until the money will be disbursed.”
Greek banks, which were already battling with shrinking deposits, were cut off yesterday by the ECB from direct borrowing pending the recapitalization, as central bank chief Mario Draghi signaled he won’t compromise on key principles to keep the nation in the euro area.
Banks are relying on the Bank of Greece’s Emergency Liquidity Assistance program for their funding needs, adding to pressure on deposits as some politicians threaten to scrap the nation’s bailout agreement in the wake of an inconclusive election on May 6. A new vote is scheduled for June 17.
Thomopolous said that while the Hellenic Financial Stability Fund received a 25 billion-euro first tranche of bonds, issued by the European Financial Stability Facility, to recapitalize the banks last month, the legal and technical issues have prevented the HFSF passing the bonds onto the banks. He declined to elaborate on those issues.
“In the run-up to the June election there could be more bad news and speculation,” said Alexander Kyrtsis, a European bank specialist at UBS AG in London. “It’s a precarious situation. It could become challenging to instill a sense of security among depositors given the political noise.”
Greek bank deposits dropped about 23 billion euros in the nine months through March, or about 13 percent, to about 160 billion euros, central bank data show. Greek President Karolos Papoulias said on May 14 that about 700 million euros had been withdrawn, without specifying over how many days.
“The reaction of the average depositor is expected given the failure to form a government,” said George Aronis, a general manager at Alpha Bank SA and member of the lender’s board. “New elections won’t be held for four weeks and the polarization of the electorate makes a permanent solution in the immediate future difficult.”
ECB Fund Access
The recapitalization fund will disburse funds earmarked from Greece’s 130 billion-euro second bailout from the European Union and International Monetary Fund. The ECB can only lend to sound banks and therefore won’t allow undercapitalized institutions to access its refinancing operations, a euro-area official said yesterday.
“The bigger issue of euro membership goes above and beyond the issue of the levels of capital,” said Daragh Quinn, an analyst at Nomura International in London. “Deposit outflows have gone on for several years.”
Greece’s four biggest banks posted a combined loss of 27.9 billion euros for 2011 from losses arising out of Greece’s sovereign debt restructuring, the biggest ever.
The HFSF will get the second 25 billion-euro tranche of EFSF bonds for the recapitalization in September, when the banks will need to have raised their core tier 1 capital ratios to 9 percent, Thomopoulos said.