Greek banks must raise euro 14.4 bn after European Central Bank test

Greece's four main banks must raise euro 14.4 billion ($15.9 billion) in fresh capital, after a review by the European Central Bank, as investors and taxpayers face the cost of repairing the damage resulting from six months of wrangling between the country's government and its creditors.

The asset-quality review resulted in valuation adjustments of euro 9.2 billion at National Bank of Greece, Piraeus Bank, Eurobank Ergasias and Alpha Bank, the Frankfurt-based ECB said in a statement. In the stress tests, the banks' capital gap amounted to euro 14.4 billion under a simulated crisis, and euro 4.4 billion under the baseline scenario. The four banks will have to submit recapitalisation plans to the ECB's supervisory arm by November 6.

"Covering the shortfalls by raising capital would then result in the creation of prudential buffers in the four Greek banks, which will facilitate their capacity to address potential adverse macroeconomic shocks," the ECB said in the statement, adding that a minimum of euro 4.4 billion, corresponding to the AQR and baseline shortfall, is expected to be covered by private means.

National Bank of Greece, the country's biggest bank by assets, has a total capital shortfall of euro 4.6 billion, of which euro 1.6 billion arises from the baseline scenario. Piraeus has the biggest shortfall of all the lenders, having to raise euro 2.2 billion under the baseline scenario, and euro 4.9 billion in total. Alpha Bank only needs to raise euro 263 million under the baseline scenario, of a total shortfall of euro 2.7 billion . Eurobank has the lowest aggregate shortfall, totalling euro 2.2 billion, of which euro 339 million corresponds to the baseline scenario.

The European Commission said in a statement that it is "encouraged" by the results, while Eurobank said that it targets maximum participation of high quality private funds in its capital increase. Alpha Bank said in a filing to the stock exchange that the result "demonstrates resilience," despite "higher hurdle rates and the repayment of euro 940 million of state preference shares in 2014, which further improved the quality of capital."

"Overall, Alpha expectedly fared best and Piraeus expectedly fared worst," Paris Mantzavras, analyst at Athens- based Pantelakis Securities wrote in a note to clients after the publication of the results. "Compared to our market estimates for the total capital bill, Eurobank is a positive surprise and National Bank a negative one."

The government of Prime Minister Alexis Tsipras and Greece's European creditors reached a bail-out agreement this summer after months of wrangling that brought the country to the brink of leaving the currency union and resulted in the imposition of capital controls. Recapitalising the country's lenders, after a month-long forced shutdown in July, is the first step to restart the country's economy, which is still crippled by recession and restrictions on transfers of capital and ATM withdrawals.