Positive response to BoG plan
Capital injection will be inevitable after the use of deferred tax assets, possibly through Tier II bond issues
The Bank of Greece’s plan for the reduction of nonperforming loans through the utilization of the deferred tax assets received provisionally positive feedback from Greek bank managers yesterday.
The plan was presented by central banker Yannis Stournaras to Alpha Bank’s Dimitris Mantzounis, National’s Pavlos Mylonas, Eurobank’s Fokion Karavias, Piraeus’s Giorgos Georgakopoulos and Attica’s Theodoros Pantalakis.
The proposal, which according to sources was described as “interesting,” must be discussed further both by the banks themselves and the competent authorities, before it takes the form of a final plan. This will be submitted for approval to the European Central Bank’s Single Supervisory Mechanism (SSM) and the competition authorities of the European Commission that will have the final say on whether the participation of the state with the concession of part of the deferred tax assets would constitute a state subsidy.
The BoG idea concerns the creation of a special purpose vehicle (SPV) to which 40 billion euros of bad loans will be transferred from the sum of some 88 billion that the banks currently have in their portfolios, along with a part of the deferred tax (around 7.5 billion euros) that presently constitutes a key part of the lenders’ own capital.
The loss of the 7.5 billion euros in deferred tax assets will inevitably lead to capital injections, estimated at around three percentage points of core capital – i.e. capital needs of 3 to 5 billion euros. Instead of direct share capital increases, these losses could be covered via Tier II bonds issued by banks, as they would be in an improved position after ridding themselves of a significant portion of their bad loans and therefore considerably improving their financial reports.
According to the details of the plan, the loans to be transferred to the SPV will be in their prices after provisions – i.e. around half of the 40 billion euros.