February 8, 2017 / 2:59 PM / 2 years ago

Greek central bank disputes IMF's view on bank capital buffer need

ATHENS (Reuters) - Greece’s central bank is disputing the International Monetary Fund’s view that the country’s banks need a 10 billion-euro capital buffer to cover any further bailout support, saying the IMF does not explain why such support would be needed.

People walk past the National Bank of Greece headquarters in Athens, Greece, February 3, 2017. REUTERS/Alkis Konstantinidis

In an annual review of Greece’s economic policies released on Tuesday, the IMF said that the buffer is needed because of n remaining risks to banks’ asset quality and a “still bleak” prospect for profitability.

“Staff has maintained its assumption from May that a buffer of around 10 billion euros, 5.5 percent of 2016 GDP, should be set aside to cover potential additional bank support needs,” the IMF said in the report, which was released on Tuesday.

It said that despite successive recapitalisations that pumped about 43 billion euros, equalling close to 25 percent of GDP to Greece’s public debt since 2010, the banks’ balance sheets remain vulnerable to high levels of bad loans.

Another IMF concern is that half of Greek banks’ capital comprises so-called deferred tax assets, which it views as contingent liabilities of the state.

The Bank of Greece disputes this. It says the IMF is “unduly pessimistic” in its macroeconomic and fiscal projections and that it played down the progress achieved in the banking sector.

“As far as banks are concerned, the Fund assumes that they will need a further 10 billion euros capital buffer without explaining why this is the case,” Bank of Greece Governor Yannis Stournaras said in a statement attached to the report.

He noted that the Bank of Greece and outside supervisors such as the European Central Bank have assessed Greek banks to have CET1 ratio - used as a requirement of protection - of more than twice the statutory requirement.

The Bank of Greece also estimates that the attainment of medium-term bad debt reduction targets it has agreed with the country’s lenders - Alpha <ACBr,AT>, National, Piraeus and Eurobank - will further increase the CET1 ratio “substantially.”

Greek banks have agreed with regulators on ambitious bad debt reduction targets spanning a 3-year time horizon.

The lenders are aiming to cut their so-called non-performing exposures (NPE) to 66.7 billion euros by 2019 from 106.9 billion euros in September 2016, meaning their NPE ratio to fall to 34 percent from 51 percent.

Reporting by George Georgiopoulos Editing by Jeremy Gaunt

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