Whacked by big losses from government-imposed debt write-downs on investors that means they will need a recapitalization of some 50 billion euros ($66 billion) Greek banks are also staggering under the weight of 46.8 billion euros ($61.8 billion) in bad loans because customers crushed by relentless pay cuts, tax hikes and slashed pensions can’t afford to pay their loans or credit cards, and nearly 25 percent have defaulted.
The Bank of Greece (BOG) released the statistics in a report on the recapitalization and restructuring of the Greek banking sector which put the credit risk, as defined by the BlackRock evaluation at 36.8 billion euros ($48.6 billion,) while another 8.2 billion euros ($10.83 billion) comprises losses from portfolios of loans abroad and 1.8 billion euros ($2.37 billion) from loans to companies related to the Greek state.
This 46.8 billion along with the 37.7 billion euros ($49.8 billion) from the debt restructuring (PSI) in March add up to losses of an unprecedented 84.5 billion euros ($111.64 billion) which amounts to 42 percent of the country’s Gross Domestic Product (GDP).
The losses have been offset to a great extent by provisions, 30.5 billion euros, ($40.3 billion) and expected profits for the 2012-14 period of 11.4 billion euros ($15 billion,) but this is not enough to save shareholder capital. The crisis has wiped out the bank shareholders’ entire capital of 22.1 billion euros ($29.2 billion) and, after factoring in the PSI and the credit risk, the net position of the Greek banking system is at -20 billion euros (-$26.4 billion).
As a result, the lost capital will have to be replaced with new funds of 40.5 billion euros ($53.5 billion) to bring the banks’ capital adequacy rate back to 9 percent by end-2014. In terms of assets, the four major banks (National, Alpha, Eurobank and Piraeus) were 8.1 billion euros ($10.7 billion) in the red at the end of the year’s third quarter on a bank level and -4.5 billion ($5.94 billion) on the group level. To cover the lost capital and align capital adequacy with BoG requirements, the four major lenders will require 27.5 billion euros ($36.34 billion).
BoG also estimates that besides the 40.5 billion euros ($53.5 billion) the recapitalization and sanitization of banks that have already been completed (concerning ATEbank, Proton, T-Bank, cooperative lenders and the sum of the funds that French parent companies paid for Emporiki and Geniki) had an impact of 1.4 billion euros ($1.85 billion.) Another 3.1 billion ($4 billion) will be required for the restructuring of smaller and cooperative banks.
The capital requirements may grow depending on the deterioration of the financial climate, BoG stressed, as well as the recent debt buyback in which Greece cut down its debt by 20 billion euros ($26.4 billion) by buying back its bonds at less than 40 percent of their value, but could also go down depending on the participation of the private sector in the recapitalization process.