UPDATE:Greece Asks Banks For Cash Plans, Extends EUR30 Billion More Aid
March 29 2011 - 5:26PM
Dow Jones News
Greece's finance ministry Tuesday said it would extend a further
EUR30 billion in aid to the country's private lenders, but said it
wanted the banks to detail how they would cover their future
financing needs and what they would do with that additional
aid.
In a statement, the ministry said it would submit legislation
shortly to expand Greece's existing bank support fund with a
further EUR30 billion in loan guarantees.
"The guarantees referred to will be provided on the condition
that every credit institution prepares and implements a medium-term
plan to cover its financing needs," the statement said.
The guarantees, which are included as part of Greece's official
bailout deal with the European Union and International Monetary
Fund, represent the latest injection by the Greek government into
the country's banking system.
Since late 2008, the government has provided a total of EUR55
billion in guarantees and other support to Greek banks, modeled on
similar programs adopted in the rest of Europe at the start of the
financial crisis. Although generally regarded as well capitalized,
the Greek banks face difficulties borrowing on interbank markets
because of their heavy exposure to Greek government bonds.
Greece's four main banks--the National Bank of Greece SA
(ETE.AT, NBG), EFG Eurobank Ergasias SA (EUROB.AT, EGFEY), Alpha
Bank (ALPHA.AT, ALBKY) and Piraeus Bank SA (TPEIR.AT)--hold a
combined EUR40 billion in Greek government bonds, representing on
average a little more than 10% of their assets.
As a result, the banks have become heavily dependent on the
European Central Bank for their cash needs. According to the latest
data from the central bank, the Bank of Greece, Greek banks
borrowed EUR97.7 billion from the ECB in December, up slightly from
EUR95.05 billion a month earlier, but almost double what they
borrowed a year earlier.
At the same time, Greece's banking system has seen a slow but
steady outflow of deposits over the past year. Total deposits in
the Greek banking system have shrunk 12% to EUR204.8 billion in the
12 months through January.
The latest EUR30 billion in aid being offered by the Greek
government would guarantee senior debt issued by the banks. The
banks could then post that debt as collateral with the ECB in order
to borrow more cash as needed.
Even so, Greece's biggest lenders have come under pressure
recently from the ECB and the Bank of Greece to reduce their
dependence on ECB funding. According to senior officials at Greek
banks, the country's lenders are expected to put forward a plan
that would pare back that dependence over the next two to three
years.
Although the details will vary from bank to bank, the measures
would include further cost-cutting, scaling back lending,
attracting fresh depositors, and selling off fledgling foreign
operations where there is a gap between deposits and assets.
In February, for example, Greece's second-largest lender by
assets, Eurobank, sold a 70% stake in its Polish operations to
Austria's Raiffeisen Bank International AG (RBI.VI, RAIFY) in a
move to save itself some EUR2 billion a year in cash.
According to the finance ministry statement, the liquidity plans
put forward by the banks would need to be approved by the Bank of
Greece and the ECB, in conjunction with the European Commission and
the IMF.
-By Alkman Granitsas, Dow Jones Newswires; +30 210 331 2881;
alkman.granitsas@dowjones.com