The Strategist

The largest Greek banks successfully passed ECB's stress tests

05/07/2018 - 12:49

Based on the results of the ECB's stress tests, the capital of the largest banks in Greece could be reduced by € 15.5 billion with an unfavorable scenario of the country's economic development in the next three years. However, despite the losses, the capital of these banks will not fall below the minimum requirements of the ECB. This, in fact speaks of the successful completion of the long-term restructuring period of the largest financial institutions in Greece.

Yesterday, the European Central Bank published results of stress tests of the largest banks in Greece, whose financial sector became the epicenter of the debt crisis that hit the EU and threatened the integrity of the euro area a few years ago. The ECB report says that the largest banks, will lose 9% of their capital in the next three years under an unfavorable economic scenario. This amount equals € 15.5 billion. Alpha Bank will suffer least of all; its capital may be reduced by 8.56%. As a result, the coefficient of Tier 1 capital (CET1) will be 9.69%. Capitals of Eurobank and Piraeus Bank will decrease by 8.68% and 8.95% respectively - to 6.75% and 5.9%. The greatest damage can be incurred by the National Bank of Greece's capital - its CET1 could decrease by 9.56%, to the level of 6.9%. 

The negative scenario for the development of the economic situation in the country for the next three years included a 1.3% decline in Greece's GDP this year, 2.1% next year, and a return to zero growth in 2020.

According to the basic scenario of the ECB, annual GDP growth in Greece up to 2020 inclusive will be 2.4-2.5%.

Despite the significant losses that the Greek banks would incur under the unfavorable scenario embedded in the stress tests, their Tier 1 capital ratio nevertheless did not fall below the ECB's recommended level of 5.5% (the minimum level of the Basel Committee is 4.5% plus 1 %). In fact, this shows success of the painful restructuring of Greek banks over many years.

Although the ECB noted that the conducted stress tests do not involve satisfactory or unsatisfactory assessments, the Greek banks reacted quickly. 

"The results of the stress tests confirm that the market situation in Greece is noticeably improving, even with conservative assumptions that were applied during the tests. We remain committed to the Program 2020, within which we will further strengthen the financial position of our bank and support the economic recovery of our country, "said Christos Megalou, Director General of Piraeus Bank.

Alpha Bank’s head also positively assessed results of the ECB's stress tests. "The outstanding results of our bank, shown in these stress tests, speak of sustainability of our capital and confirm our ability to achieve strategic goals. The leading position of our bank allows us to fully focus on the plan for further disposal of distressed assets and support of the Greek economy, which is currently recovering."

At the end of April, the OECD released a report that referred to restoration of the Greek economy, improvement of the labor market and credit situations. Having positively assessed the anti-crisis measures of the Greek authorities in recent years, the OECD forecasts an annual GDP growth of 2% in 2018 and 2019. Presenting the report, the OECD’s Secretary General Angel Gurria stated that "the reforms in Greece have finally begun to bring results. This is a very impressive achievement. The priorities are strengthening the state financial system, improvement of macroeconomic indicators, solving problems with poverty and raising living standards of the population. "