* But may need over EUR 2 bln by June 2012 *
The two biggest Cypriot banks, Bank of Cyprus (BOC) and Marfin Popular Bank (MPB), will need to find EUR 300 mln in the short term to meet the minimum capital requirements after a 50% Greek sovereign haircut, according to estimate by Sapienta Economics, but will need around EUR 2 bln in the longer term to meet the new more stringent requirements that have a deadline of June 2012.
Last night, EU leaders agreed on a comprehensive eurozone rescue package that includes the private sector taking a 50% haircut on Greek sovereign debt.
Between them, the three biggest banks in Cyprus have lent the Greek government EUR 5.1 bln. BOC has lent EUR 2 bln, MPB has lent EUR 3 bln and Hellenic only EUR 110 mln. A 50% haircut will therefore have an impact on the banks’ capital ratios.
One of the banks has hinted that it will come out with its own announcement in the coming days. In the meantime, here are some estimates from Sapienta Economics based on data gathered just after the EU-wide stress tests were published.
From January 2012 the Basel II minimum Core Tier 1 capital ratio minimum will be 4.5%. However, the Central Bank imposed a stricter minimum of 8% in July and last night the European Banking Authority set a minimum of 9% by June 2012.
The three banks are currently well within target. Bank of Cyprus has a Core Tier 1 capital ratio of 12.7% (EUR 2.1 bln), Marfin Popular Bank (MPB) 12.0% (EUR 2.5 bln) and Hellenic Bank 9% (EUR 0.5 bln).
But our analysis shows that a 50% haircut brings both BOC and MPB below even the Basel II threshold.
BOC’s Core Tier 1 drops to EUR 1.1 bln, bringing the Core Tier 1 ratio to 4.3%. It needs to find EUR 100 mln to get it back to 4.5%.
MPB’s Core Tier 1 drops to EUR 1 bln with a ratio of 3.8%. It needs to find EUR 200 mln to get it back to 4.5%.
Hellenic’s Core Tier 1 ratio drops 8%, so it is still well within Basel II targets.
The bigger challenge is for the banks to claw back the capital they will have lost via the default in order to meet the new EBA requirement by June 2012.
To get a 9% Core Tier 1 ratio, BOC needs to finds EUR 1.2 bln between now and June and MBP needs to find EUR 1.4 bn. Hellenic Bank only needs to find EUR 100 mln.
Earlier this year the two banks raised EUR 2 billion between them fairly easily. But this time they will be competing the all the other banks in the eurozone dashing to meet the same deadline.
In the banks’ favour will be loan/deposit ratios below 100%, meaning that they have good liquidity positions.
Going against them are the EUR 20 bln they hold in private sector Greek debt.
Even if Greece remains within the euro, the hangover of Greek private debt is likely to affect their non-performing loans and their profits for many years to come.
Fiona Mullen
www.sapientaeconomics.com
