And why do they need more money?
- The level of non-performing loans greatly exceeds the level estimated by BlackRock; and
- Loss of interest income on Greek sovereign debt that was written down as part of the latest Greek sovereign debt restructuring.
The country’s main banks are considering requesting additional funds for their recapitalization.
Senior bank officials say that the rapid deterioration in financial conditions caused by the back-to-back elections in mid-2012 has led to a greater increase in nonperforming loans than originally foreseen in the BlackRock report a year ago.
They add that banks should proceed to greater share capital increases in order to respond to the new reality.
Ernst & Young estimates that nonperforming loans in Greece approached 24 percent of all loans at the end of 2012.Who could have guessed that nonperforming loans would skyrocket with the government having adopted austerity measures and the economy plunging into a depression?
The bond buyback dealt another great blow to the credit sector that has made a revision of the capital requirements necessary.
The Bank of Greece had estimated that operating profits for National, Alpha, Eurobank and Piraeus for the 2012-14 period would amount to 11.09 billion euros, which had been excluded from the calculation of the lenders’ capital needs.
One of the main sources of those future revenues would have been the interest from the bonds amounting to 16 billion euros that banks had in their portfolios. However, the so-called voluntary sale of the bonds entailed a loss of those revenues for the banks.
According to estimates for the country’s four main banks, the buyback signifies a revenue reduction of at least 1.5 billion euros, thereby increasing their capital requirements.Actually, there is no need for more capital. These banks should generate 9.5 billion euros in operating profits (11.09 - 1.5).
All the loss of revenue on the sovereign debt means for the banks is it will take them longer to rebuild their book capital levels while they retain 100% of their operating profit.
The Bank of Greece has announced that the four systemic banks will need in the region of 27.5 billion euros for their recapitalization, but if that estimate on the buyback is upheld, the bill will reach up to at least 29 billion euros.
The four lenders’ losses from the credit risk (including loans in Greece and abroad) are estimated at 14.58 billion euros, but if the deepening of the recession is factored in, the losses would grow by about 10 to 20 percent and the capital needs would expand by between 1.5 and 3 billion euros.
As a result the capital stock of 5 billion euros formed by the Bank of Greece for future needs may have to be used immediately by the big banks, eventually taking the total bill of the recapitalization process to over 30 billion euros.