Greece's bank stability fund approved an 18 billion euro ($22.96 billion) injection to rescue its four largest banks and an official said they would get the urgently needed funds as soon Wednesday.
Bankers say the recapitalisation will allow them to again receive funding from the European Central Bank (ECB), which cut off some Greek banks last week because they lacked enough capital to be considered solvent.
Huge losses from a sovereign debt swap in March nearly wiped out the capital of Greece's systemically important banks and Greek authorities are scrambling to wrap up a bridge recapitalisation to help them cope with a cash crunch.
The Hellenic Financial Stability Fund (HFSF) said it had approved an agreement to release the funds, which will come in the form of notes issued by the euro zone's financial rescue fund, the European Financial Stability Fund (EFSF).
The HFSF statement said the deal would be presented to the Greek banks for signing on Wednesday, and an HFSF official said the funds would be released as soon as it was signed.
Recapitalising Greece's limping banks is a vital part of the 130-billion-euro EU and IMF bailout Greece agreed in March to stave off national bankruptcy.
But with Greece lacking an elected government after an inconclusive vote on May 6, implementation of the deal is largely on hold. With details of the overall 50-billion euro recapitalisation plan for the banks still unresolved due to political deadlock, authorities have come up with an interim solution to keep the four biggest banks afloat until a new government is formed to finish the framework.
Greece will hold a repeat election on June 17, and opponents of the March bailout agreement have surged in opinion polls, alarming European leaders who say that if the bailout is rejected at the ballot box Greece could face swift bankruptcy and economic collapse.
Greeks have been withdrawing their funds from banks for months, and the pace has picked up dramatically since the May 6 vote. That has forced Greek banks to cover their funding gaps by tapping liquidity from the ECB and the Greek central bank's more expensive emergency liquidity assistance (ELA) window against collateral.
They already had borrowed 73.4 billion euros from the ECB and another 54 billion from the Bank of Greece via ELA, based on the most recent data as of January.
Together, the sums translate to about 77% of the banking system's household and business deposits, which stood at about 165 billion euros at end-March.
Last week the ECB suspended some Greek banks from its funding operations because their capital was too low, forcing them to migrate to higher-cost funding at the Bank of Greece's ELA facility.
National Bank, Eurobank, Alpha and Piraeus are to be allocated 18 billion euros of European rescue fund (EFSF) notes by the HFSF, a state capital backstop.
The fund has already received 25 billion euros of EFSF notes for recapitalisation purposes.
COMPLICATED PROCESS
Bankers say that with many sides involved in the scheme, including the EU/IMF/ECB troika, the Bank of Greece, the HFSF and the EFSF, there was an added layer of complexity when trying to agree on the technical details of the injection.
"Mapping each side's objectives and finding common ground has delayed the allocation. Each side is keen to ensure its objectives are met and finding common ground takes time," a banker told Reuters.
The EFSF wants to be able to reclaim its bonds if something goes wrong, for instance if bank shareholders reject the terms of the final recapitalisation plan when it is finally unveiled by the next government.
The Bank of Greece wants the capital injection to be as permanent as possible, while the HFSF seeks to protect taxpayers' money and fully comply with regulations.
"They are trying an interim recapitalisation via a cash advance. Banks will sign pre-subscription agreements with the HFSF, effectively an underwriting agreement," the banker said.
The agreements will spell out the conditions under which the cash advance would become permanent capital and when it could be demanded back from the banks.
