Banks sweating over recapitalization terms

The next few days will determine the future of the local banking system, a top official at a Greek lender told Kathimerini, as the new government will have to determine the details regarding the recapitalization process as soon as possible.

Provided negotiations with the representatives of Greece’s international creditors -- known as the troika -- come to a problem-free conclusion, the remaining 25 billion euros put aside to refinance the country’s credit system should be disbursed within the month of July. Eighteen billion euros has already been disbursed as a down payment for the recapitalization of National, Alpha, Eurobank and Piraeus.

The details of the process, including the conditions and structure of the recapitalization, will determine the future and the form of the banking system. The thorniest issue is that of the incentives for private investors to participate in the share capital increases. Banks and investors are keenly anticipating ministerial decisions on the possibilities of private sector investment in the industry.

“For the private sector to have some substantial incentives to participate in the process, it will need to ensure that its participation will be under the same terms as the [Hellenic Financial Stability] Facility,” the Hellenic Bank Association noted recently in a text with proposals submitted to the Finance Ministry. Otherwise, the banks warned, attracting investors will be particularly difficult, which would lead to the nationalization of the credit system.

Bank officials suggest that without a strong banking system which is able to tackle the problems and challenges of the current juncture, the efficient funding of the economy will be impossible and the end of the crisis will become more distant than ever.

The troika is also in favor of the banking sector retaining its private character, as the representatives of Greece’s creditors are fully aware of the malfunctions, inefficiency and poor human resources of the country’s public sector. The most recent report by the International Monetary Fund stressed that Athens should provide ample incentives to ensure the private character of any banks deemed sustainable.

The government of Lucas Papademos chose to postpone the recapitalization process that should have been concluded before the May elections, according to Greece’s agreement with its creditors. The delays and inability to make a decision on the procedure reflect the worries about whether it would be possible to retain the private character of banks given the huge amount of funds the public sector will contribute toward the system’s recapitalization. 

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