* ECB's Provopoulos: Greek bank sector has enough capital
* Says central banks could sell bonds to stabilisation fund
* Break-up of euro zone is "absurd" notion
(Adds details, combines stories)
FRANKFURT/ATHENS, June 21 Greece's banking
sector had sufficient capital at the start of the crisis to see
it through recent upheavals, European Central Bank Governing
Council member George Provopoulos was quoted on Monday as
In an interview published in the Wall Street Journal,
Provopoulos also suggested the ECB could sell government bonds
bought under its new purchase programme to the 440 billion euro
fund set up to ensure financial stability in the euro zone.
The Greek central bank chief said he expected bad loans to
rise over the next two years, potentially putting pressure on
smaller Greek lenders.
"Our analysis suggests that NPLs (non-performing loans) will
peak early in 2012. We will start seeing clear signs of
improvement in 2013 and thereafter," he told the paper.
"At the start of the crisis, our banking system had a
capital buffer of well over 10 billion. Our stress tests and
simulations indicate that this buffer is fully sufficient to
cover any potential erosion of the capital base for the system
as a whole. Of course, not all banks are the same or face
similar shocks, so one cannot exclude the possibility that some
banks, especially smaller banks, may need support."
The European Union will stress-test European banks to gauge
how well they would withstand slower growth and pressure on
sovereign debt holdings. [ID:nLDE65H1RP]
In a speech to an economic conference in Athens, Provopoulos
rejected the idea of the euro zone breaking up as "absurd".
He said he was confident that Greece would emerge stronger
from the current crisis after support from the European Union,
ECB and International Monetary Fund.
"Some market analysts are of the opinion that Greece's debt
dynamics are unsustainable. They are wrong," he told the Onassis
"The combination of factors comprising the support programme
-- fiscal discipline, liberalisation of markets, privatisations,
and measures to increase the efficiency of the bureaucracy --
will contribute to confidence ... and boost competitiveness and
economic growth," he said.
"(The support package) will set-off positive growth dynamics
that will, among other things, lower the debt-to-GDP ratio. The
growth potential of the Greek economy is enormous. It is my firm
belief that the present crisis will prove to be the catalyst
that will reshape the economy."
ECB COULD SELL GOVERNMENT BONDS
In the WSJ interview, Provopoulos said euro zone central
banks should consider selling government bonds bought under the
purchase programme to the euro zone's new stabilisation fund.
"Once the transmission mechanism is restored, the issue of
what to do with the securities purchased could be addressed,
especially in light of the fact that the Securities Markets
Program is temporary," he said.
"Although the issue whether the EU Stabilization Fund would
be able to purchase the debt obtained by the ECB under the
Securities Markets Program is not foreseen under the provisions
of the Stabilization Fund, the idea merits further
The ECB has previously floated the idea of selling bonds
bought under the purchase programme -- more than 47 billion
euros to date -- back to banks, but has not said what it will do
with the bonds.
Provopoulos said the ECB would wind back its extra liquidity
measures as soon as it was appropriate to.
"You can be sure that we will exit those measures in a
timely fashion in line with improvements in the functioning of
the markets. We will never lose sight of our primary mandate of
ensuring price stability over the medium term," he said.
(Reporting by Krista Hughes in Frankfurt and George
Georgiopoulos in Athens, editing by Mike Peacock)