Greek banks are being told by auditors some of their assets are overvalued, meaning they may have to raise close to the maximum 25 billion euros ($28 billion) allocated for their recapitalization this fall, people familiar with the matter said.
While a so-called Asset Quality Review on their books under the auspices of the European Central Bank is still in progress and no precise figures have been communicated yet, a drive by regulators to adopt more conservative assumptions about impairments and provisions for losses may lead to the capital holes, according to the three people, who asked not to be identified because the process is private.
A significant shortfall could also force Greek banks to sell assets, or scale down non-core activities, in order to raise capital, before tapping taxpayers’ money, and thus revise the restructuring plans approved last year by the European Commission.
An assessment “led by the Single Supervisory Mechanism is currently ongoing, and the Commission cannot at this stage prejudge if amendments to the restructuring plans will be required,” said Ricardo Cardoso, a spokesman for the European Commission. “We are in close and constructive contacts with the Greek authorities and the banks concerned.”
The latest Greek bailout package allocates as much as 25 billion euros for National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE. The higher the capital increase the banks need, the bigger the hit to existing shareholders. It would also add to Greece’s debt burden because more taxpayer money from the bailout would have to be used.