After not opposing a merger of Greece’s National Bank with Eurobank, the country’s internatonal lenders now have asked for it to be stopped, fearing the combined entity would have too much financial power and be too big for the government to handle.
Reuters reported that the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) said the merger would create a bank whose assets would be too large relative to the country’s Gross Domestic Product( GDP) as had happened on Cyprus, bringing down that country’s banking system.
Two unnamed banking sources said that doubts had been raised over the merger. “Pretty much these are the arguments put forth by the troika,” one of the bankers told Reuters. The banks and the Greek government had no comment to make on the report. European Commission officials were not immediately available.
National Bank (NBG) took over 84.3 percent of Eurobank last month via a share swap as part of consolidation in Greece’s banking industry to cope with fallout from the debt crisis and a deep recession. The two banks have already initiated merger procedures.
“NBG is going ahead with the legal merger process to absorb Eurobank, which has been approved by Greek and European authorities. Our goal is to complete the process by June,” an NBG official told Reuters, declining to comment on the report. The combined group would have assets of 170 billion euros ($217.9 billion) almost the size of the country’s 190 billion euros ($243.6 billion) GDP and 36 percent of total deposits.
“The Troika is arguing that the two banks must be recapitalized separately and remain separate legal entities,” the report said. “The request of the Troika that the merger be cancelled is a red line for the government as the tie up is now on its final stretch,” the paper said. The two banks together need 15.6 billion euros ($20 billion) in fresh capital to shore up their solvency ratios to levels required by the central bank after incurring losses from a sovereign debt writedown and impaired loans.
While Greeks are suffering from pay cuts, tax hikes and slashed pensions, Eurobank especially has developed a reputation for aggressive pursuit of people who can’t afford to pay and requires those who do pay loans in full to pay them again if they don’t get a technical letter of discharge that they have already paid their obligation.
According to the newspaper Kathimerini, which also reported on the change-of-heart, Troika officials argued that the combined entity would find it hard to raise a minimum 10 percent of the needed capital from the private sector to stay privately run, as required under the agreed recapitalization scheme.
That would bring the group under the full control of a state bank support fund, which would have a harder time finding a buyer for a bank of this size in the future and as the country’s banking sector needs an injection of funds after suffering huge losses when a former government wrote down the value of Greek bonds held by investors by 74 percent, an action which also ruined Cyprus’ economy.