The managers of Greek banks believe that a Bank of Greece plan can resolve the looming problem of non-performing loans (NPLs) without requiring yet another bank recapitalisation and the concomitant threat of a bail-in.
The plan was presented to the competent European authorities over the last few days.
Banking sources say that the Bank of Greece plan for NPLs can contribute to expediting plans to reduce non-performing exposures (NPEs) and to improve the quality of the capital of Greek banks.
The same sources say that loans in arrears with extremely long delays are the most problematic aspect of banks’ portfoloios and that the plan allows for a substantial reduction without the need for share capital increases. That is because the proposal provides for non-activation of deferred tax debts (DTCs) and contributes to systemic stability.
More specifically, the plan provides for a reduction of non-performing exposures (NPEs) by half and for maintaining the capital adeqquacy index at a double-digit level for all four of Greece’s systemic banks.
Based on indicative data one might have an average burden of up to 3 percentage points on the CET1 index. Given the organic profitability of banks over a three-year period will fully replenish banks’ capital.
Banks will have the ability to maintain the overall capital index at current levels and with the issuance of a TierII bond, given the substantial cleanup of their portfolios.
The Bank of Greece proposal gives banks the ability to utilise in the proper direction existing projections and their substantial capital reserves. That ability is restricted now due to legislation pertaining to tax arrears.
Alpha Bank and Piraeus Bank, which follow the conservative approach of calculating their weighted assets have tied up most of their capital for NPEs (Alpha Bank has two billion euros in capital reserves) and they will be able to use it more flexibly to reduce the volume of delinquent loans.
In any event, all banks that will participate in the Bank of Greece plan on a voluntary basis will, after the transfer of the loans, have a better capital quality with a smaller participation of tax arrears.
