Greece's central bank said the country's four biggest banks needed 27.5 bln euros ($36.3 bln) of fresh capital to restore their solvency ratios, confirming disclosures by the lenders last week.
Battered by the country's debt crisis and a protracted recession, banks suffered heavy losses from a sovereign debt swap in March while their loan portfolios continue to be pounded by rising credit impairments.
At stake is whether National Bank, Eurobank, Alpha and Piraeus will remain privately run or end up nationalised.
Greece and its international lenders have earmarked 50 bln euros from the country's 130 bln euro bailout to recapitalise the four systemically important banks and wind down others deemed not viable.
Under the plan, banks will have to issue new common shares to achieve a core Tier 1 capital solvency ratio of at least 6% and contingent convertible bonds or CoCos to boost the ratio to 9%.
The key element in the recapitalisation scheme is that the private sector must take up at least 10% of the new shares issued to keep the lenders privately run.
Authorities have set up a capital backstop, the Hellenic Financial Stability Fund (HFSF), which will inject most of the capital in the recapitalisation. It is funded from the country's bailout package.
RECAP FUNDS SUFFICIENT
In a long-awaited report, the Bank of Greece said capital needs for all of the country's 14 commercial banks came to 40.5 bln euros.
Of that sum, 27.5 bln or about 14.5% of this year's gross domestic product (GDP), corresponded to the needs of the big four.
The Bank of Greece said the 50 bln euro financial envelope earmarked to recapitalise and resolve non-viable banks over the 2012-14 period was adequate.
"The recapitalisation of Greek banks and the restructuring of the sector are expected to gradually restore depositors' and market confidence," the central bank said.
Its overall estimate included the impact of completed bank resolutions to date, costs of potential future restructurings and a capital buffer of 5 bln euros to take into account developments that could affect the sector's capital needs.
The central bank's assessment was based on two macroeconomic scenarios – a baseline that set a core Tier 1 ratio target of 9% for 2012 and 10% for 2013-14 and an adverse one setting a target ratio of 7% for the period.
It estimated the evolution of the core Tier 1 capital adequacy ratio over the three-year period taking into account credit loss projections, the hit from the debt swap and banks' internal capital-generation capacity.
The timetable for the recapitalisation of the big four calls for completion of CoCo issues by the end of January 2013. The contingent convertible bonds will be fully underwritten by the HFSF fund.
Banks' rights issues must be completed by the end of April next year.
The central bank also released the findings of a diagnostic study on bank loan portfolios by BlacRock Solutions. The firm was commissioned to ascertain potential credit losses during the three-year period caused by the deep recession.
BlacRock looked at 223.4 bln euros of loans at 16 banks covering mortgages, credit card, consumer and business credit. It projected credit losses would reach 26.6 bln euros under the baseline scenario and hit 34.8 bln under an adverse outlook.
