Bank of Greece chief George Provopoulos said a stress test conducted on the country’s four ailing major banks deliberately was conservative on how much they would need in recapitalization funds so investors wouldn’t be scared off.
While the tests for the National Bank, Piraeus Bank, Eurobank and Alpha Bank – which last year received an injection of 28 billion euros ($38.6 billion) – showed they needed only 6.4 billion euros ($8.82 billion) more, the figure is disputed by the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB).
The stress tests were designed to see whether the banks could cope with a mountain of bad loans – estimated to be as high as 42 percent as Greeks buried by pay cuts, tax hikes and slashed pensions have stopped paying what they owe.
But in an interview with Sunday Kathimerini, Provopoulos – who has been wrong the past few years in predicting an imminent recovery for Greece from a crushing economic crisis and a deep recession now in its seventh year – said European Union-wide stress test results later this year will prove he was right.
The EU and IMF, which had estimated that the banks’ needs would be higher, said in a statement that there were “upside risks” to the Greek estimates and urged the banks to address the high level of non-performing loans.
Provopoulos’ response was to say that if the tests “were unduly conservative and imposed an overcapitalization of the banks, we would run two serious risks.
“First, we would shake the trust of depositors, who would say, rightly, that for the banks to need a new big capital boost, they must be weak.
“The second danger would be that private investors who placed money in the capital increases of banks as part of last summer’s recapitalization would lose any confidence in the country and its banking system.”
Greece’s bank rescue fund, the HFSF, which recapitalized the banks last summer, has a remaining buffer of about 8-9 billion euros ($11.03-$12.41 billion) to address any additional needs.
Among the bad loans is an estimated 250 million euros ($344.84 million) owed by the ruling New Democracy Conservatives of Prime Minister Antonis Samaras and his coalition partner the PASOK Socialists.
New Democracy officials said the loans are being repaid but European Competition Commissioner Joaquin Almunia said they are not.
While the parties aren’t paying their loans, the government has insisted that other bank customers must pay theirs and in January agreed with Troika demands to let banks start foreclosing on homes of people who couldn’t afford to pay their mortgages.