The four major Greek banks recorded over 22 billion euro in losses due to the voluntary write-off of the Greek debt by private lenders. BlackRock’s study of the financial system shows that between January and September 2011, The National Bank of Greece, Eurobank EFG, Piraeus Bank and Alpha Bank recorded losses of 3.6 billion euro, making the total value of the black hole in them higher than 22 billion euro. A temporary solution to the recapitalization issue is expected by Friday, as there is no final agreement yet on the conditions that would trigger the financial stability fund. This solution is not considered final because it has to fill the hole in bank budgets due to the PSI, but not the losses due to "non-performing loans resulting from the deep recession."
The president of the Bank of Greece George Provopoulos and Prime Minister Lucas Papademos are discussing the details related to the first cash injection for banks at a meeting today. At the end of the week, Greece will put on the market bonds of the European Financial Stability Facility (EFSF) worth 23 billion euro. They will have to strengthen the capital of the Greek financial stability fund from which banks will draw some strength. Banks, in turn, have another issue to solve that relates to the accounting and tax accounting of PSI implications. Estimating the losses resulting from the process will help to assess the capital needs of Greek banks. It is not yet clear how the domestic financial stability fund will be recapitalized - with ordinary bonds with no voting right or convertible bonds, which will give the government the right to vote in managing the banks.
The estimated amount to be provided to banks to recover their stability could reach 26 billion euro. The assistance will be crucial for keeping the European status of Greece, but it will not be free. So far, the plan is that those taking advantage of the assistance from the financial stability fund will be able to buy back the shares, when they get back on their feet, but it is has not yet been determined what it will cost to return the shares.
Banks do not rely solely on state aid financed with European money, but are seeking ways to strengthen. Eurobank EFG made three strategic moves that brought it additional capitalization of one billion, days before the enactment of the state support mechanism. The recovery programme was launched in early 2011, when Eurobank EFG sold its Polish branch Polbank to the Austrian Raiffeisen Bank (RBI Poland). The Greek bank continues to hold 13% of the financial institution and it will receive for that 490 million euro this year. Secondly, Eurobank EFG has recently redeemed some of its obligations in the domestic and international capital market thus relieving itself of a serious burden. Thirdly, the Greek bank has agreed to sell Eurobank Tekfen in Kuwait to Burgan Bank and the deal is expected to be completed this autumn.
So far, figures show that 15% of the loans granted in the Greek market are non-refundable and about 60 billion euro flowed out from the deposit portfolio of Greek banks. Although reduced, the risks for the decreasing savings of Greek households remain. First is the fragility of local banks due to the crisis and debt cut. The constant pressure of financial deficits contributes to this too and the European Central Bank proves to be the only vent. Last but not least, constant rumours of returning to the drachma are an ill turn as they are further destabilizing the situation in Greece. In the scenario for returning to the national currency, all deposits will be converted into drachmas and their value would vanish overnight. These rumours are expected to finally dissipate if pro-European parties win the elections in early May.