The Bank of Greece plans to start stress tests for the nation’s four systemic banks in late February next year with a view to determine by June if they need fresh capital before the end of the Greek bailout program.
European Central Bank (ECB) President Mario Draghi on Monday said that the single supervisory mechanism might front-load stress tests for Greek banks.
Banks have been asked to send data by the end of February, a Bank of Greece official said, requesting anonymity in line with policy, while another official said that the results of the tests might even be ready in the first two weeks of May.
As Greece prepares for a post-bailout era when the program ends in August next year, shrinking bad loans at banks has become the most pressing issue.
At the end of the first semester, non-performing loans (NPLs) — excluding off-balance sheet exposures — stood at 72.8 billion euros (US$86 billion), missing the target set by supervisory authorities for 72.4 billion euros.
The non-performing exposure ratio was 50.6 percent, higher than the 50 percent target.
The push to complete the tests comes after the IMF’s demand in July for a new asset-quality review (AQR) for Greek banks, which has cast a shadow over the banking system and economy.
Since late July, the nation’s banking index has tumbled more than 30 percent.
The fund’s demand would result in a “further erosion of investor confidence in Greece and an undermining of European banking regulators’ political independence,” Hayman Capital Management founder and chief investment officer J. Kyle Bass wrote in an article.
The Greek government, the Bank of Greece and the ECB say that such an AQR would harm the nation’s lenders, because they need to focus on addressing the NPL issue.
The nation’s creditors have criticized Greece for not moving fast enough to reduce NPLs.
An electronic auction of bad loans, for example, which was supposed to have started this month, has yet to be operational and will need a few more weeks before it can process orders.
The authorities are running on-site inspections at two of the four banks — National Bank and Alpha Bank — to assess their NPL portfolios while the other two — Piraeus Bank and Eurobank — are to follow in the coming months.
The goal is to see whether the banks have adequate provisions and whether they will need to raise more capital.
With the results of the Bank of Greece stress tests due before the end of the bailout program, banks might be able to avert another AQR. The matter might be discussed at the IMF’s autumn meeting in the middle of next month.
Greece’s third bailout review officially begins right after the meetings in Washington, with creditor representatives heading to Athens.
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