Greece pushes for stronger banks to weather crisis

Greece wants to shore up its banking system against the backwash of the country's debt crisis and has commissioned a study on how to go about it, reviving speculation that some of its lenders could merge.
While Athens has so far been meeting its fiscal commitments, slashing the deficit at a fast pace, its banks continue to face challenges as the austerity-induced recession deepens and liquidity strains persist.
"The Greek banking system continues to face a challenging environment," Athens said on Friday in a progress report to EU authorities.
"The government has commissioned an in-depth study on the strategic options."
These might include mergers, local or cross-border, or capital injections, with the government keen on bigger banks with strong balance sheets and better access to capital markets to tackle the tough road to fiscal health.
With a debt load forecast to reach 149% of gross domestic product by 2013 and the economy likely to slump by around 4% this year as tax increases and cuts in wages and pensions take a toll, Athens is focused on financial stability.
The government has repeatedly called on banks to explore tie-ups to morph into bigger and stronger entities.
All Greece's six top lenders apart from ATEbank passed a pan-European stress test last month that showed they could cope with a rapid rise in non-performing loans. Although debt restructuring was not covered directly, the test results eased some investor concerns.
The government's stance has sparked takeover speculation, helping battered bank shares rally since mid-July when Piraeus Bank picked up the gauntlet and offered 701 million in cash to buy government stakes in ATEbank and Hellenic Postbank.
The government, which has said it will seriously consider the offer, is expected to name the investment banks it picked as advisers for the in-depth study next week, with Greek press saying they will be Lazard, HSBC and Deutsche Bank.
Analysts say talk of deals in the making is unlikely to go away as investors weigh possible match-making.
"We believe there is support for domestic consolidation from politicians, regulators and banks," said BofA Merrill Lynch analyst Johan Ekblom. "We view potential consolidation as a positive, it can both support earnings and at a later stage access to capital markets."
One top concern is banks' access to wholesale funding, which remains shut because of sovereign debt worries. This forces them to turn to the European Central Bank (ECB) to fund their maturing interbank liabilities.
The latest data from the Bank of Greece show banks made more use of the ECB's liquidity offerings since June, with total funding rising 2.6% to 96.2 bln euros in July — fast approaching 20% of the system's total assets.
To remedy pressures on the valuation of bonds Greek banks hand the ECB as collateral for funding, the government has pledged a new 25 bln euro tranche of guaranteed bonds to ensure sufficient loans from the lender of last resort.
This is in addition to a 10 bln euro capital support mechanism for its banks — the financial stability fund –that has already been enacted and will become operational by mid-September with its first tranche of funding.