IMF, ECB reach compromise that waives full AQR for Greek banks (upd)

The International Monetary Fund (IMF) and the European Central Bank (ECB) reached a compromise on Thursday on how to assess the capital adequacy of Greek banks before the end of the current programme in August 2018.

Poul Thomsen, Director of the IMF’s European Department, said that an ECB proposal to frontload a scheduled round of stress tests on Greek banks – instead of a full asset quality report demanded by the IMF – was constructive, making the following statement at the FT Investment Management Summit in London:

“On the subject of the Greek banking system, let me emphasise that we see no financial stability concerns at all in Greece. The issue is that we need to be sure that there is a strategy to deal with Greece’s exceptionally high level of nonperforming loans over the medium term. In this regard, we had suggested to update the 2015 asset quality review (AQR) by next spring. The ECB has instead proposed bringing forward the already scheduled stress tests and undertaking targeted asset reviews, suggesting that this will allow us to gather the information necessary to assess whether the current strategy for ensuring the soundness of the banking system is adequate, without having to go through a full asset quality review (AQR). We think that this is a constructive proposal that achieves the same broad objectives, and we are now discussing the exact modalities with our colleagues at the ECB.”

A disagreement between the IMF and ECB began in the summer, after the IMF demanded an AQR and stress tests on Greek banks ahead of the end of the current programme, adding that Greek banks should use money already approved by a third bailout program should any capital needs prove necessary.

Greek banks underwent a stress test and asset quality test in the second half of 2015 – in the framework of the third programme – and completed their recapitalisation. The ECB said that the four systemic banks needed capital worth 4.4 billion euros under the basic scenario and capital worth 14.4 billion under the adverse scenario.

ECB expressed its disagreement with the IMF’s demands, while the Single Supervisory Mechanism (SSM) said that, as an independent body, it was not prepared to accept directions from either institutions, EU bodies, governments or any other organisation. The SSM said a round of stress tests on Greek banks was scheduled for the second half of 2017.

However, ECB head Mario Draghi, speaking in the European Parliament on Monday, said that the SSM had informed the IMF that the stress tests would be brought forward in 2018. Greek Finance Minister Euclid Tsakalotos on Wednesday said that the stress tests on European banks would be held as scheduled but their results would be announced ahead of the end of the Greek programme.