Credit sector rejects IMF’s call for another 20 billion in capital

The local credit sector categorically rejects the International Monetary Fund’s fresh questioning of Greek banks’ capital adequacy, saying that the risks it cites are incompatible with its forecasts.

The IMF estimates that Greek lenders may require an additional 20 billion euros in order to deal with their losses from nonperforming loans.

Bank managers and sources from the Bank of Greece vehemently deny such a possibility, stressing that for that need to arise the economy would have to nosedive anew in the next three years, something that goes against the forecasts of the Fund itself. They stress that the IMF’s baseline scenario is for gross domestic product to expand 2.9 percent next year, then 3.2 percent in 2018 and 2.8 percent in 2019, which should mean banks will not need any additional capital.

“If the economy moves the way that the IMF and the European institutions have forecast, then domestic lenders will not only have an adequate capital base, but at the end of 2018 they will actually be overcapitalized,” one bank official said.

Sector sources add that banks may only face extra capital needs if the recession deepens in 2016 and in the next couple of years, creating a new generation of nonperforming loans. They concede that the country is in fact at a crucial point, saying that if the rebound is not achieved this time either, then the country risks lapsing into irreversible conditions.

As things stand, analysts say that Greek banks have particularly high capital adequacy ratios, among the highest in Europe. However, a significant issue is the quality of the capital, as a large part of it today consists of deferred tax assets, which generate concern. But that is a matter that not only concerns Greek banks, but also those of many other European countries.

This is not the first time that the IMF has disagreed on the level of Greek lenders’ capital requirements. In early 2014 the Fund expressed disagreement about the results of the stress tests that BlackRock had conducted for the Bank of Greece. BlackRock had identified capital needs of 6.4 billion euros at the time, while the IMF countered the requirements added up to 20 billion. Bank officials underscore that the recapitalization was indeed conducted but under conditions that BlackRock couldn’t have foreseen when it conducted its stress tests in late 2013: The recovery of the economy halted in 2015 and the banking system crumbled due to the many months of uncertainty during the negotiations led by then finance minister Yanis Varoufakis, which led to the third bailout.