ATHENS – With Greece’s bank sector reeling in the wake of big losses imposed by the government as part of a deal with international lenders to reduce its debt, the country’s four largest banks have been given 18 billion euros ($22.6 billion) in a recapitalization that comes the same month anxious customers have been withdrawing as much as $1 billion a day, fearful of an economic collapse.
With critical June 17 elections looming, forces in favor of more austerity demanded by international lenders in return for $325 billion in two bailouts have warned that unless they win, Greece will be forced out of the Eurozone of the 17 countries using the euro as a currency, back to the drachma, and into social unrest.
Greek banks have been teetering since the former coalition government of New Democracy Conservatives and PASOK Socialists approved a so-called Private Sector Involvement (PSI) deal putting 74 percent losses on investors and banks. With a temporary caretaker government now in power but without any authority, banks have been floundering. Under the terms of the second rescue package, for $173 billion, all revenues collected by the government needed to repay investors have to go into a special escrow account and not government purposes.
The monies were channeled from the European Financial Stability Facility (EFSF) rescue fund to boost the nearly depleted capital base of National Bank, Alpha, Eurobank and Piraeus Bank, allowing them to regain access to European Central Bank (ECB) funding. The ECB, along with the European Union (EU) and International Monetary Fund (IMF) make up the Troika providing Greece with the loans.
The Finance Ministry said that, “This capital injection restores the capital adequacy level of these banks and ensures their access to the provision of liquidity funding from the European Central Bank and the Eurosystem. The banks have now sufficient financial resources in support of the real economy.” “The bridge recapitalization was worked through Hellenic Financial Stability Fund (HFSF), which was set up to provide funding to weakened banks. The HFSF allocated 6.9 billion euros ($8.6 billion) to the National Bank, 1.9 billion ($2.38 billion) to Alpha, 4.2 billion ($5.3 billion) to Eurobank and 5 billion ($6.27 billino) to Piraeus. All four are scheduled to report first-quarter earnings this week.
While Greeks have been suffering pay cuts, tax hikes and slashed pensions in a deep recession with 21.7 percent unemployment and the closing of 1,000 businesses a week, the banks have been demanding customers repay loans in full, although New Democracy and PASOK owe them millions and haven’t paid. The news came as two government officials told Reuters that near-bankrupt Greece could access 3 billion euros ($3.76 billion) left from its first bailout program, to cover basic state payments if efforts to revive falling tax revenue fail.
“Our finance ministry efforts at this time are focused on boosting revenue,” one official told Reuters. But he added that if those efforts failed they would “examine all alternatives, including the 3 billion euros from the first bailout.” Officials have been fearful of a run on the banks if Greeks panic.
Tax revenues will fall more than 10 percent this month, a senior finance ministry official said last week. Officials had warned the state could run out of cash to pay pensions and salaries by the end of June and the Troika has warned that any attempt by the next government to tinker with reforms could lead to the money pipeline being shut off.
With access to wholesale funding markets shut on sovereign debt concerns, Greek banks have been borrowing from the ECB against collateral, and from the Greek central bank’s more expensive emergency liquidity assistance (ELA) facility. Bleeding deposits, the country’s lenders have borrowed 73.4 billion euros ($92 billion) from the ECB and 54 billion ($67.7 billion) from the Bank of Greece via the ELA as of end-January, about 77 percent of the banking system’s household and business deposits, which stood at about 165 billion euros ($206.8 billion) at the end of March. Funded by the euro zone and the IMF, the HFSF is due to inject up to 50 billion euros ($62.7 billion) into the country’s banks in return for shares which it hopes to sell some day.
(Sources: Kathimerini, Reuters)