UPDATE 1-Greek banks likely to need fresh capital - central bank

Thu Jan 16, 2014 9:57am EST

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By George Georgiopoulos

ATHENS Jan 16 (Reuters) - Greek banks are likely to need additional capital after results of a health check are finalised this month, the country's central bank said on Thursday, potentially threatening government plans to reduce its own funding gap.

The government wants to be able to tap part of the money left over in the Greek bank bailout fund to reduce the country's funding gap this year and next. The European Union and International Monetary Fund estimate the shortfall to be about 11 billion euros ($14.95 billion).

Greece's four big banks are undergoing a second round of stress tests by the central bank to check if last summer's 28 billion euro ($38.06 billion) recapitalisation has left them capable of absorbing future shocks as bad loans keep rising.

Non-performing loans have swollen to about 30 percent of total lending as six years of recession have shrunk the Greek economy by a quarter, driving unemployment to nearly 28 percent.

"Most likely more capital will be needed," Bank of Greece Governor George Provopoulos told a parliamentary hearing, without providing figures or specifying which banks might need additional funds.

But Provopoulos also reiterated that the remaining capital buffer at the bank rescue fund, the Hellenic Financial Stability Fund (HFSF), is sufficient to cover any additional capital needs.

"The remaining cushion at the HFSF of about 8 to 9 billion euros will be able to cover the capital needs likely to arise from the stress-test procedure," he told lawmakers. "It is a substantial, satisfactory cushion."

Greece's top banks are National Bank, Piraeus Bank , Eurobank and Alpha Bank, controlling about 90 percent of the country's banking market.

They are majority owned by the HFSF, which was funded by Greece's EU bailout package and covered most of last year's 28 billion euro recapitalisation in return for shares in the banks.

The Greek stress tests will help the banks to negotiate forthcoming pan-European checks before the European Central Bank takes over direct supervision of top euro zone banks in November.

The Bank of Greece hired BlackRock to conduct an asset quality review to determine potential credit losses up to 2016. Greek lenders were asked to prove they have sufficient capital to withstand another two years of recession under the "adverse" scenario of the stress test. ($1 = 0.7356 euros) (Editing by David Goodman)

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