November 17th, 2015

Greek banks AQR results came out better than “feared” by EU officials

The four systemic Greek banks’ AQR and stress tests were recently released by ECB. Total assets of close to €300bn were placed under ECB’s stress tests. The resulting total capital shortfall reached €14.4bn under the adverse scenario. This amount is considered lower than the one “originally feared” by some EU officials. It is worth noting that Eurobank and Alpha have already covered their capital shortfall via share capital increases.

Eurobank (capital shortfall €2.1bn under adverse scenario) and Alpha Bank (€2.7bn) were less affected than Piraeus Bank (€4.9bn) and National Bank of Greece (€4.6bn). The former two are proceeding with private share capital increases, while Piraeus and NBG are more likely to also use HFSF (state) funds. NBG’s imminent sale of Finansbank in Turkey is also expected to bridge significant part of the capital required.

Non-systemic Attica Bank has a shortfall of €1bn in the adverse scenario, according to a separate assessment conducted for the small lender by the Athens-based central bank, which oversees smaller non-systemic Greek banks.

While some international financial press reports doubt the credibility of those tests, one has to admit that they are the strictest and most conservative ever made in Greek banking since the crisis. Furthermore, the bar to passing the core tier one capital ratio test was set higher than what was used in last year’s Eurozone wide assessment.

The key result of the AQR is that the four systemic Greek banks overvalued some of their assets by €9.2bn (as of 30 June 2015). In addition to NPLs, NPE was measured and tested according to the new ECB standards. NPE ratios reached 48% across all four banks.

The recent AQR and stress test results and the increased NPL provisions imposed to the banks reaffirm our view that more active NPL management is expected in 2016. Overall we believe that while many NPLs (esp. the restructured ones) are still under provisioned, corporate and SME NPLs worth 3-5 billion € (nominal) are likely to be sold either outright or via JV structures during 2016.