Record losses reaching 28 billion euro were announced yesterday by the four major banks in Greece – The National Bank of Greece, Alpha Bank, Eurobank EFG and Piraeus Bank, due to their involvement in the exchange of Greek bonds (PSI +), but also because of the negative consequences of the financial crisis on their activities in general.
Senior officials of the largest Greek banks reached the same conclusions in their statements:
- Implementing the programme for the exchange of Greek government bonds has affected the financial performance and capital of Greek banks in a particularly negative way but it was their national debt that contributed in this endeavour to help the country emerge from the crisis.
- Overcoming the negative implications of PSI and the consequences of the economic crisis on the regulatory capital of banks by guaranteeing capital adequacy for the Greek banks is a part of the new economic programme.
- Recapitalizing the Greek banks will help boost market liquidity and fund investment projects of Greek companies, thus facilitating the gradual recovery of the Greek economy. Overall, conditions are being developed for major restructuring of the banking system to make it stronger and more efficient and to increase its role in economic development.
- Banks are committed to help finance the Greek economy, households and firms so that the long-awaited development of the Greek economy begins.
After the financial results of the banks have been announced, attention is now being drawn to their recapitalization. The issue was discussed during a meeting between Prime Minister Lucas Papademos and the Governor of the Bank of Greece George Provopoulos on Thursday.
The parameters and the recapitalization procedure in general will be included in a special legislative act of the Council of Ministers and the Bank of Greece, in turn, will determine the amount by which any financial institution would have to increase its capital in order to meet the capital adequacy requirements.
According to estimates by the International Monetary Fund, the total capital needs of Greek banks are set at 50 billion euro.
Under the initial schedule, the plans for sustainability of Greek banks have to be drawn up by the end of March in order to select the banks eligible for state aid. By the end of April, banks must have submitted their projects for capital aid, which must also involve their existing shareholders.
Prime Minister Papademos: bank recapitalization is a prerequisite
Speaking at an international conference held in Athens, Prime Minister Papademos said:
"If banks want financial aid from the state, they should increase funding for small and medium enterprises. And if small and medium enterprises want bank loans, they should protect and increase employment."
"Both are in favour of our economy and society. And if it does not happen, banks and companies will be operating in an economy that will be continually shrinking and will allow neither their development nor their profitability."
"Recapitalization and increased liquidity in the banking system are prerequisites for the financial security of the economy and the small and medium enterprises. And increased funding of small and medium enterprises is related to creating and protecting jobs. These are very significant conditions along with the implementation of the economic programme, which will enable Greece to move to recovery and sustainable economic development as quickly as possible," said the Prime Minister.
In respect of the losses that the four major Greek banks have incurred due to the PSI, the specific values are as follow:
The National Bank of Greece reported losses of 12.35 billion euro for the fiscal year 2011 as a result of its involvement in the exchange of Greek government bonds.
The nominal value of eligible securities involved in the write-off procedure of the Greek debt reached 14.8 billion euro. As a result, their devaluation by 75% led to losses for the bank amounting to 11.78 billion euro.
However, in addition to the securities necessarily involved in the haircut, the management of The National Bank of Greece proceeded to additional voluntary devaluation of bonds amounting to 1.17 billion euro (after taxes).
Furthermore, waiting for the completion of the regulatory framework for deferred taxes, the National Bank of Greece has not added the tax relief of 1.3 billion euro to the financial results, which would limit the losses due to the PSI +.
Alpha Bank reported net losses amounting to 3.81 billion euro for the fiscal year 2011. The loss is due to the devaluation of bonds amounting to 3.83 billion euro following its involvement in the write-off programme for the Greek sovereign debt.
This has led to a decrease in the index of equity (Core Tier I) to 3.0% and the index of capital adequacy to 5.5%.
The total loss in regulatory capital due to the PSI + involvement reached 863 points and the physical capital remains positive.
Significant is the fact that at a group level, the financial institution recorded last year a net profit before PSI amounting to 21.4 million euro.
Eurobank EFG reported a total loss of 5.5 billion euro for the fiscal year 2011 (after taxes).
Of this amount, the loss of 4.6 billion is due to the PSI and the other 856 million euro loss is the result of exceptional adjustments that have already been calculated and affected the regulatory capital, mainly due to the devaluation of securities and investments abroad.
After the PSI, the total equity of the bank equals 875 million euro.
However, the sale of Polbank EFG and Eurobank Tekfen has improved the liquidity of the bank by nearly 3.5 billion, which is equivalent to a 1 billion euro increase in its equity.