April 15, 2016 / 11:16 AM / 4 years ago

UPDATE 2-Greek banks' EFSF notes eligible for ECB purchases, shares jump

* Selling notes will benefit Greek banks

* Banks shares climb in response (Recasts, adds ESM comment)

By George Georgiopoulos

ATHENS, April 15 (Reuters) - Greek banks will be able to sell some of their European Financial Stability Facility notes to the European Central Bank under its purchasing programme, an ECB spokesperson said on Friday, sending their shares higher.

Greek banks hold about 37 billion euros ($41.72 billion) of EFSF notes. After rounds of recapitalisation, they stand to make gains on the securities and reduce their ECB borrowing.

“Up to 50 percent of the outstanding amount can be purchased as this is the limit applicable to securities issued by eligible international organisations,” the ECB spokesperson told Reuters.

Bank shares rebounded 14.4 percent on Friday after nursing losses in the previous sessions.

“The market jumped on this one-off positive piece of news after days of negativity,” said Eurobank analyst Nick Koskoletos.

The EFSF notes held by Greek banks had not been eligible for ECB purchasing, based on an agreement with the European Stability Mechanism (ESM). Banks could repo them with the ECB to obtain cheap funding.

“The Eurosystem has an interest in utilising all eligible bonds in order to support the smooth implementation of purchases under the Public Sector Purchase Programme,” an ESM spokesman said.

“The Eurosystem is therefore also interested in buying the notes issued by the EFSF in the context of the recapitalisation of Greek banks in 2012 and 2013,” the spokesman added.

The EFSF holdings were subject to transfer restrictions, preventing Greek banks from selling them outright to investors.

“The ECB and the EFSF, together with the Greek banks and Greek authorities, have recently lifted this restriction, which allows Greek banks to sell parts of their holdings of these EFSF notes to the Eurosystem within the context of the PSPP,” the ESM spokesman said.

Notes issued by the ESM in the 2015 recapitalisation are not eligible for the purchasing programme because of their short maturities.

Apart from capital gains, selling a portion of their EFSF notes to the ECB could reduce the amount Greek banks borrow from it. ($1 = 0.8869 euros) (Reporting by George Georgiopoulos, editing by Larry King)

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