Money Drain

In Greece, Big Banks Set to Flunk Stress Test

national bank of greece
People outside a National Bank branch in Athens. The bank is one of four being evaluated.
  • Why it matters

    Why it matters

    Though four major banks have received billions in recapitalization, they may need even more as bad debts continue to rise.

  • Facts


    • Tensions are high in banking offices as the October stress test looms for four key Greek banks.
    • Only €11.5 billion of €50 billion remains in the Hellenic Financial Stability Fund.
    • Interest payments on debts totaling €77 billion, almost one third of all the debt held by the banks, are not being made.
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Greece’s four largest banks are unlikely to pass a key stress test and may require even more cash because of growing credit risks, despite being recently recapitalized.

The European Central Bank will release results of the test in October before it begins supervision of the approximately 130 largest European banks on November 4. The four largest Greek banks –National Bank of Greece, Piraeus Bank, Alpha Bank and Eurobank Ergasia—will likely fail the test.

The banks saw virtually all capital resources wiped out with the 2012 haircut, or reduction in market value of their securities used for loans. The banks were recapitalized last year with European auxiliary funds funneled to the Hellenic Financial Stability Fund (HFSF). Of the €50 billion ($67.1 billion) made available, only €11.5 billion remains.

Based on its own stress test at the beginning of the year, the Bank of Greece determined it would need more capital. The four banks also have attempted to raise more cash through the sale of €8.3 billion in additional stock to investors, but it may not be enough because of the growing number of loan defaults.

Interest payments are no longer being made on debts totaling more than €77 billion, which represents more than one-third of €215 billion in total debt issues. So far, only half the non-performing loans have been cleared from the books through reserves, and credit institutions are hesitant to make further write-offs in order to avoid damage to their balance sheets.

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