ECB: Greek banks need billions to cover bad loans
November 1, 2015, 11:52 am

It’s been a hard sell for Alexis Tsipras to push the bailout reform conditions through Parliament. On Saturday, Parliament approved measures to draw up billions for cash-strapped banks [Xinhua]

The ECB said on Saturday that $16 billion in capital is needed to cover the closure of Greek banks during the Athens-Brussels impasse last summer, in addition to bad loans and defaults that have contributed to the country’s crisis.

Bringing the struggling banks back to fully functioning institutions is crucial to ensuring there is liquidity as the government embarks on reforming the Greek economy.

The ECB says that the four local banks – Alpha Bank AE, Eurobank Ergasias SA, National Bank of Greece SA, and Piraeus Bank SA – must come up with a recapitalization plan by next week.

The Greek Parliament bill calls on the above banks to use common or preferred shares to enhance their ability to raise funds to deal with such crises.

The bill also draws on the Hellenic Financial Stability Fund (HFSF), the state-owned recapitalization fund, to cover any emergency shortfall.

Eurozone finance ministers agreed to a $95 billion bailout package in mid-August on the condition that Athens would implement significant economic reforms.

These also include taking considerable austerity measures such as slashing defense and agriculture subsidies, reforming the pensions regimen, increasing privatization, raising taxes, removing value-added-tax discounts, and increasing deregulation.

One of Prime Minister Alexis Tsipras’ greatest challenges has always been to secure means to recapitalize the banking sector, which makes up 20 per cent of the Greek Stock Market ATG.

As the Grexit crisis peaked in June and July, Greeks withdrew billions of dollars from their accounts, forcing a 60-euro daily limit on withdrawals.

Some $28 billion of the $95-billion bailout package has been allocated to the recapitalization of banks and Greece is likely to use some of these funds.

However, these funds, too, must be repayed; Athens will likely minimize as much as possible drawing on these funds in order to avoid increasing its debt.

The BRICS Post with inputs from Agencies