ECB said to start stress tests at Greek banks in February

Athens, Greece - The Bank of Greece plans to start stress tests for the country’s four systemic banks in late February with a view to determine by June if they need fresh capital before the end of the Greek bailout programme.

European Central Bank (ECB) president Mario Draghi said on Monday that the single supervisory mechanism may front-load stress tests for Greek banks. Banks have been asked to send data by the end of February, a Bank of Greece official said, requesting anonymity. Another official said the results of the tests may even be ready in the first two weeks of May.

As Greece prepares for a post-bailout era when the programme ends in August, shrinking bad loans at banks has become the most pressing issue. At the end of the first semester non-performing loans, excluding off-balance sheet exposures, stood at € 72.8bn, missing the target set by supervisory authorities for € 72.4bn. The non-performing exposure ratio was 50.6 per cent, higher than the 50 per cent target.

The push to complete the stress tests comes after the International Monetary Fund’s demand in July for a new asset-quality review, or AQR, for Greek banks. The AQR request has cast a shadow over the banking system and economy. Since late July, the country’s banking index has tumbled more than 30 per cent.

The fund’s demand would result in a ‘further erosion of investor confidence in Greece and an undermining of European banking regulators’ political independence’, founder and chief investment officer of Hayman Capital Management, J Kyle Bass, wrote in an article published by Bloomberg.

The Greek government, the Bank of Greece and the ECB say that such an AQR would harm the nation’s lenders because they need to focus on addressing the non-performing loans (NPL) issue.

The country’s creditors have criticised Greece for not moving fast enough to reduce NPLs. An electronic auction of bad loans, for example, which was supposed to have started in September, has yet to be operational and will need a few more weeks before it can process orders.

The authorities are currently running onsite inspections at two of the four banks - National Bank and Alpha Bank - to assess their NPL portfolios while the other two - Piraeus Bank and Eurobank - will follow in the coming months. The goal is to see whether the banks have adequate provisions and whether they will need to raise more capital.