Greek bank stocks are coming under heavy pressure amid fears that the banks can’t digest their mountain of bad loans and might need fresh capital.
Shares in the banking sector, which have shed around 30% of their market value since the beginning of September, ended 8.8% lower on Wednesday after being down 18% earlier.
Shares of Piraeus Bank led the selloff, shedding 20.7%. The bank needs to raise some €500 million ($577.5 million) in capital by selling Tier-2 bonds by the end of the year under a plan agreed to with ECB supervisors, several officials said.
Greece left its eight-year-long bailout program in late August, but uncertainty over the country’s banks persists. Many investors aren’t convinced that the banks can reach their challenging targets for reducing nonperforming loans while returning to profit and regaining the ability to make new loans and sustain the fragile Greek economy.
Nonperforming loans and other assets at Greek banks, which have been recapitalized three times during the country’s debt crisis, total €88.6 billion.
“Investors appear to have completely lost confidence in Greek banks,” economists at HSBC said in a research note.
The four main banks— National Bank of Greece , ETE -5.49% Alpha Bank, Eurobank Ergasias and Piraeus Bank—recently submitted ambitious plans to rid themselves of more than half of their soured loans by 2021 to the banking-supervision unit of the European Central Bank, several bank officials said.
Under the new plans, which the ECB is considering, the banks would commit themselves to reduce their nonperforming loans to 15%-21% of their total loans, compared with today’s levels of 40.7%-54.7%.
The reduction would be achieved through settlements, auctions and portfolio sales, as well as by writing off assets and booking losses. But there has been limited investor interest in the auctions of foreclosed properties, with many of them ending up being bought by the banks themselves. Progress on sales of nonperforming-loan portfolios has also been slow. Write-offs had an impact on second-quarter results, with some banks swinging to losses and others barely sustaining profitability.
At a presentation to investors the Greek government led about Greece in London in late September, almost all questions concerned the country’s banks and how their problems could hold back economic growth.
“The joke was that there is no banking sector in Greece, just an imaginary sector that drags a huge amount of distressed assets,” an investment banker who took part in the roadshow said.
Market conditions for Greek issuers have become difficult because of financial turbulence in neighboring Italy and Turkey. The Greek government has had to postpone plans to issue bonds until next year because of market volatility.
Piraeus Bank said it is monitoring “the debt capital markets to identify the right timing for the issuance.”
Source: The Wall Street Journal