Ratings agency Moody’s said on Monday that uninsured depositors in Greek banks are in danger of losing some of their money in case of a bank’s insolvency.
Moody’s noted that the changes in the EU Bank Recovery and Resolution Directive, which was legislated in Greek Parliament last week, established new guidelines for the cases of bank insolvency. One of these is a haircut option for uninsured deposits exceeding 100,000 euros.
The ratings agency warned that uninsured depositors and bondholders are compromised by the new law as it limits the use of state funds to save banks as well as by distributing the cost of insolvency to all types of uninsured deposits, including bondholders.
Under the new legislation,the government has a number of options when it comes to lending institutions that become insolvent. It could decide that the bank must be sold, a bridge institution could be created and assets could be disjointed based on whether they are good or bad.
After January 1, 2016, the Greek government can also choose to bail-in deposits of more than 100,000 euros.
Moody’s also noted that non-performing loans will account for 40% of total loans in 2015-2016. Non-performing loans accounted for 35% by the end of 2014. This increase will further compromise the capital sufficiency of Greek banks, which scored a 12.8% ratio of common equity in Tier 1 capital ratio.
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