Listen to this article
Greek lenders face bankruptcy on Monday if the country fails to strike a deal with creditors over the weekend, according to senior bank executives, as they described frantic efforts to keep the country’s financial system afloat and their preparations for an uncertain future.
The banks have been leaking cash at a rate of more than €100m a day even with capital controls that were imposed to restrict withdrawals, one banker said. There will be no money left for customers by Monday unless the European Central Bank agrees to lend them more money, this person added.
Echoing that assessment, the head of the Greek banks association told Greece’s Skai TV on Thursday morning that cash points would have money until Monday, but did not say what would happen after that.
As Greece’s crisis has deepened, its banks have emerged as the chief vulnerability that could soon force the country to leave the single currency. Without a deal with its creditors that provides some support for its financial system, the government would instead be forced to begin printing a new currency to recapitalise them or possibly raid customers’ deposits.
As the pressure has mounted in recent days, bankers told the Financial Times that Greece’s banks were effectively passing cash among themselves. The system is co-ordinated by the Bank of Greece, which has been asking healthier banks to return some of their liquidity so it can be doled out to weaker ones.
“We don’t have a choice,” one banker said.
The banks are pinning their hopes on an eleventh hour deal between Greece and the eurozone that would allow the ECB to increase the €89bn in emergency funding that they have already drawn and also ease their borrowing terms.
Last week the ECB changed the rules so Greek banks were obligated to provide more collateral for every euro they borrowed from the ECB. The changes mainly affected collateral that was secured by a Greek government guarantee. One banker estimated about €16bn of collateral was “wiped out” by the ECB’s move.
If an increase is not secured, the banks “will be put under resolution and shut down”, one banker said.
Greek bank executives believe there is little they can do to prepare for a Grexit — a Greek exit from the eurozone — because the Bank of Greece would become the key decision maker in such a scenario.
In the meantime, though, bank executives have begun reviewing their recovery and resolution plans and taken some measures to secure funding. Some have also explored the possibility of selling offshore subsidiaries in Turkey, Cyprus and central and eastern Europe.
In a resolution scenario, the first step would be to wipe out some or all of the equity owned by shareholders and those who hold junior bonds and other low quality capital. Such actions could raise €30bn in total, bankers estimate.
Some believe that would be sufficient to absorb the increase in loan defaults banks have suffered since the start of the year. Greek banks hold about €40bn of loan loss provisions, covering almost 60 per cent of non-performing loans, say financiers.
If they cannot generate sufficient capital this way, bank executives say, they may be forced to “haircut” depositors. This could mirror events in Cyprus two years ago, when the government seized a portion of deposits above the €100,000 threshold covered by deposit insurance rules in order to recapitalise banks.
But some argue such a move would have limited effect: only about €30bn of Greek banks’ €120bn deposit base is outside the guarantee. Of that sum, about €20bn is the working capital of small businesses, which would have particularly harsh repercussions for the economy if it were subjected to a so-called bail-in.
Greek bankers are conflicted on the prospect of imposing losses on deposits below €100,000 and European regulatory sources say it is legally forbidden.