February 10, 2015 / 1:55 PM / 5 years ago

UPDATE 1-Greek bank deposit outflows slow in Feb-bank sources

ATHENS, Feb 10 (Reuters) - Greek bankers said on Tuesday that deposit outflows have slowed so far in February after a sharp increase estimated for a month earlier, but savers are still uneasy over the new leftist government’s standoff with its official lenders.

Political uncertainty in the run-up to the Jan 25 vote sparked large deposit outflows, starving banks from funding in the interbank repo market and forcing them to increase their borrowing from the European Central Bank.

There has been some concern in financial markets and political circles that Greece’s current standoff with its international lenders could worry depositors, causing them to make more withdrawals.

But the senior banking sources said there was relative calm.

“We are seeing smaller outflows so far in February compared with January’s 11 to 12 billion euros drop in deposit balances.” said a senior Greek banker who declined to be named.

“I estimate outflow at about 1 billion so far in February,” he said, expecting household and business deposit balances to have fallen below 150 billion euros last month.

The Bank of Greece, the country’s central bank, is expected to release official January deposit data on Feb. 26.

“Outflows have decelerated so far in February,” the chief executive of one of Greece’s top four commercial banks told Reuters. “There is adequate liquidity in the banking system.”

“Since the election, we have seen outflows slow down,” said another.

The ECB last week stopped accepting the sub-investment Greek bonds and state-guaranteed bank bonds the Greek banks use as collateral for funding, shifting the burden onto the Bank of Greece.

Forced by a liquidity squeeze to increase their borrowing from the ECB’s funding facility to 56 billion euros in December, banks will now have to migrate a big chunk to the domestic central bank’s so-called emergency liquidity window (ELA) as of Wednesday.

But as long as banks can access ELA liquidity, the switch from ECB financing should not have major implications other than higher costs of funding, according to banking sources and officials.

The ECB has set a cap of up to 60 billion euros on ELA liquidity available from the Bank of Greece, which they review every two weeks.

At the height of the debt crisis in 2012 banks borrowed in excess of 120 billion euros from the same facility but reduced this to almost zero last year.

In addition, they still have some ECB-eligible collateral in the form of European Financial Stability Facility bonds that can be used to tap cheaper funding from the ECB.

While the ECB’s decision to stop accepting junk-rated collateral has raised pressure on Athens to compromise in its push for debt and fiscal relief, bankers say the cap on ELA can be adjusted upwards if liquidity is squeezed further.

“The ceiling on ELA funding can be raised if there is a need but this is at the discretion of the ECB,” a Bank of Greece official told Reuters. “Such a decision would hinge on the government’s agreement with its euro zone lenders.” (Reporting by George Georgiopoulos; Editing by Jeremy Gaunt and Anna Willard)

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