Greek Banks Regain Their Composure

• According to the Bank of Greece, the €50bn bank bailout provided by the second economic and financial adjustment programme should be sufficient to fund the recapitalisation and restructuring of the Greek banking sector.

• The Q3 2012 results of Greek banks continued to be hard hit by the extremely high cost of credit risk.

• The sector is in the midst of rapid change marked by a series of pending or upcoming mergers and acquisitions.

In recent years, and in the past several months in particular, an unprecedented crisis has battered the Greek banking sector, depriving it of access to international markets and triggering a massive flight of deposits, which peaked after the country called on international aid in 2010. Greek banks have also had to weather a deteriorating macroeconomic environment and recession, which dramatically eroded the quality of their assets. Lastly, domestic credit institutions participated heavily in sovereign debt restructuring last March via private sector involvement (PSI), resulting in massive losses of nearly €37.7bn for the Greek banking sector3, equivalent to 10.1% of total bank assets.

In the wake of PSI, and to resolve the solvency problems of Greek banks, which had become notoriously under capitalised after absorbing such massive losses, the Hellenic Financial Stability Fund (HFSF) made its first capital injections in April 2012 with the help of EFSF bonds. This was to be followed by further capital injections, but the political crisis that broke out in May 2012, coupled with the renegotiation of European bailout conditions by the new Greek government, ended up putting bank recapitalisation “on hold.” After the Greek government and its main international creditors reached a new agreement on 27 November, the overall environment has eased considerably and the recapitalisation of Greek banks now seems to be back on track again.

By Julie Enjalbert

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