National Bank of Greece (NBG): Greek Banks Infla

National Bank of Greece (NBG): Greek Banks Inflate Capital
Greek banks looking to improve capital status ahead of ECB’s evaluation
National Bank of Greece (NBG): Greek Banks Inflate Capital

By: Troy Kuhn

Published: Oct 27, 2015 at 6:54 am Est

NBG

As Greece advances toward recovery, the country’s banks are scurrying to boost their capital to shield themselves against stress tests. If Greek banks perform poorly in the upcoming stress tests, current investors would face major losses and trims to their investments.

Greece’s three major banks i.e. National Bank of Greece (ADR) (NYSE:NBG), Alpha Bank, and Eurobank are preparing to readjust their capital ahead of stress tests, industry sources reported to the Financial Times. Piraeus Bank followed suit and offered junior bondholders the opportunity to limit their losses ahead of stress tests and exchange credit claims for ordinary shares.

Greek banks are in a rush to inflate their capital profiles as fears rise ahead of European Central Bank’s (ECB) verdict on banks’ capital status. The banks are concerned that ECB’s assessment of capital profiles could generate an understated result, which could lead to a deflated amount released to Greek banks to suffice their “actual” capital needs.

Read Also:National Bank Of Greece (ADR): Austerity High As Bailout Review Looms
As the Greek debt crisis escalated, depositors' fears on the state and future of their savings also picked up. With uncertainty climbing to its peak, investors became skeptical about the economic well being of Greece. As a result, crippled investor sentiment resulted in the severe erosion of bank reserves. Depositors pulled out their savings at an alarming pace, leaving banks devoid of crucial liquidity.

Concurrently, Greek banks have become highly dependent on ECB’s financial assistance program, dubbed the emergency liquidity assistance (ELA). In order to cushion crumbling bank reserves, the ELA program provides a source of funding via Greece’s central bank, Bank of Greece. According to the terms stated in the third bailout package, Greek banks are eligible to tap the 86 billion euro bailout package, depending on their capital status.

At present, the ECB is the main body responsible for deciding a bank’s liquidity position and its capital needs. As a result, Greek banks are increasingly tapping the market to extract alternate methods to plug capital shortfalls. This is primarily a result of rising fears that the ECB’s evaluation could potentially blur the real picture.

Meanwhile, National Bank of Greece stock, after recovering modestly last week, has resumed its downward trend. The stock closed at $0.780, down 11.86% on market close yesterday. The bank has a market cap of $2.97 billion.

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