Exclusive: Greek Bank Access To Bailout Cash To Be Restricted

Greek banks will have restricted access to bailout funds until a fresh injection of equity to recapitalize them several months from now is approved, sources told Reuters on Wednesday.

An initial 10 billion euros ($11.16 billion) will be made available “immediately” to shore up confidence in Greek banks, but it will be placed in a restricted account, at least until a “stress test” is finished by the middle or end of October, they said.

The European Stability Mechanism — which provides financial assistance to euro area member states experiencing financing difficulties — will be responsible for distributing this cash, if banks fall short of minimum capital requirements.

But no disbursement is expected for now as banks are seen maintaining adequate capital until the full 25 billion euros outlined in the rescue package agreed between Athens and its international lenders are available, one source said.

Greek banks, closed for much of July, have been kept on a lifeline by the European Central Bank and are limiting cash withdrawals to a weekly 420 euros per customer to prevent a run. But they have built up a 5 billion euro liquidity buffer thanks to capital controls, indicating confidence is returning.

“When the full recapitalization of banks is fulfilled it will have a major impact for the economy,” one of the sources said. “We know that there is around 40 billion euros in cash under the mattresses in the real economy and that money could come (back to the banks) very very quickly.”

Greece agreed this week on the its third bailout deal, potentially worth up to 86 billion euros, and expects to have all approvals in place by Aug 20, when a 3.2 billion euro payment to the ECB is due.

Although the Greek government has proposed maintaining all banks, despite suggestions that some could be merged or closed, the lenders will have to get their business plans approved by authorities before fresh equity is disbursed.

European authorities have also given up on the idea of bailing in either depositors or other creditors, although shareholders will be diluted, the sources said, adding that existing shareholders, such as Fairfax Financial Holdings, a major owner of Eurobank, would also be given the option to take part in the banks’ recapitalization.

Once the recapitalization is approved, new shares in the banks will be held by the Hellenic Financial Stability Fund (HFSF), not European authorities, which will allow the banks to perform normal credit and capital market operations with relatively few limitations, one of the sources said.

Greece’s top banks include National Bank of Greece, Eurobank, Alpha Bank and Piraeus Bank.

REUTERS