Greek banks boost capital ahead of stress tests

ATHENS (Reuters) - Greece's banks unveiled a raft of capital raising initiatives from potential rights issues to asset sales in a bid to bolster their financial health ahead of the announcement of stress tests results on Friday.

Piraeus Bank said on Friday it was negotiating the sale of its Egyptian subsidiary after EFG Eurobank announced talks to sell a Turkish unit on Thursday, while Alpha Bank shareholders voted in favor of a rights issue.

"It is no coincidence these announcements have been made now. Obviously the stress tests may show that even if Greek banks pass, they will be near the limit," said a Greek banking analyst, who declined to be named.

Greek banks depend on the European Central Bank (ECB) for liquidity as they have long been shut out of wholesale funding markets on sovereign debt default fears. Investors fret that a poor score in the stress tests will exacerbate their plight.

"These announcements by banks are tactical moves to boost their liquidity. They are preparing for the plan that will prevail for tackling Greece's debt," said Nikos Christodoulou, an analyst at Merit Securities.

Euro zone officials are debating how to involve the private sector in a new bailout for Greece and the ECB has warned it could turn off liquidity taps for Greek banks if the sovereign bonds they hold as collateral are hit by a default.

With Greek state finances in dire straits, poor stress tests results would add to the woes of policy makers looking to safeguard the country's banking system. Greek lenders are heavily exposed to government bonds.

International lenders bailed Greece out a year ago with a 110-billion-euro loan but high lending costs are keeping Athens out of bond markets. Austerity measures have caused social unrest with clashes between police and protesters in Athens.

LENDER PRESSURE

"Greece's international lenders are pressing constantly for capital strengthening (at Greek banks) due to the downturn in the country and the rise in non-performing loans, but also the uncertainty over the sovereign debt's trajectory," National Securities analyst Panagiotis Kladis said.

Greek bankers say their banks would not be wrecked by a "selective default" on a proposed sovereign debt rollover if it was lifted quickly, but caution that an arrangement would need to be made with the ECB to ensure that funding does not dry up.

Latest data show ECB funding to Greek banks rose 12.3 percent month-on-month in May, hitting 97.5 billion euros or about 19.5 percent of their assets.

The Greek banking index was up 2 percent at 1017 GMT, with the stress test results due at 1600 GMT. It is down 34 percent since the start of the year, compared with a 12 percent drop in the European banking index.

A health check of European banks is expected to show that as many as 15 lenders need more capital to withstand a prolonged recession, with criticism growing that the tests do not encompass the impact of a Greek default.

ATEbank, the only Greek lender to fail the 2010 pan-European stress tests and seen by analysts as likely not to pass this time round either, completed a 1.26 billion euro rights issue last month to boost its balance sheet.

The Greek government has been trying to reassure a skeptical public that a "selective default" would not spell real bankruptcy. Amid public protests against austerity measures, the latest opinion poll showed the opposition conservatives developing a six percent point lead over the ruling socialists.

(Additional reporting by George Georgiopoulos and Lefteris Papadimas; Writing by Greg Roumeliotis; Editing by Peter Millership)