Greece must sell a “substantial share” in Eurobank Ergasias SA to a strategic international investor by the end of March to shore up its banking sector, the European Commission said.
Greece is reviewing its bank industry to qualify for future payments under its 240 billion-euro ($318 billion) bailout from the euro area and International Monetary Fund, the European Union’s Brussels-based executive arm said in a report today. The rate of non-performing loans reached 29 percent at the end of the first quarter, according to the report.
“The banking sector faces a challenging macroeconomic environment and a perceptible deterioration in the repayment culture,” the commission said in the report. “It is of the utmost importance to enhance the management of distressed assets in banks and strengthen incentives for repayment culture.”
The four biggest Greek banks finished their recapitalization in June after their solvency was shredded by last year’s sovereign debt restructuring and the quality of their loan portfolios deteriorated amid the country’s six-year recession. The country’s bailout earmarked 50 billion euros for the capital injection. Only Eurobank failed to meet a requirement to raise 10 percent of capital needs from private investors or cede management control to the state-run Hellenic Financial Stability Fund.
National Bank of Greece SA, Piraeus Bank SA, Eurobank and Alpha Bank SA will all undergo new stress tests to determine whether the capital injection has sufficiently strengthened their solvency.
Funds left over from the 50 billion euros after recapitalizing the four banks and resolving smaller lenders will be needed to backstop the new stress tests, which will be completed this year, according to the commission report.