May 25, 2016 / 1:20 PM / 4 years ago

UPDATE 1-ECB to reinstate waiver on Greek bonds in weeks -banking sources

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ATHENS, May 25 (Reuters) - The European Central Bank will resume accepting Greek government paper as collateral for lending funds to Greek banks within weeks of a review of the country’s bailout concluding successfully, two bankers with knowledge of the matter said.

The policy move would allow Greek banks to switch part of their borrowing from the Bank of Greece to the ECB, where funding is cheaper.

“The ECB will reinstate the waiver in the coming weeks. It may happen next week,” one banker told Reuters on Wednesday. The ECB Governing Council is due to meet on June 2 in Vienna.

The ECB abandoned its waiver in early 2015, cutting a cheap lending lifeline for Greek banks and forcing them to borrow billions of euros from the domestic central bank’s emergency liquidity assistance (ELA) window to cover their funding gaps.

“Greek banks will benefit by 150 million euros from cheaper interest once the waiver is reinstated and by about another 300 million euros if Greek bonds are added to the ECB’s quantitative easing (programme)” a second banker said.

In Frankfurt, an ECB spokesman declined to comment.

Overnight, euro zone finance ministers gave a nod to releasing 10.3 billion euros ($11.5 billion) in new funds under Greece’s bailout.

They also gave their firmest offer yet of debt relief in a deal that won a provisional commitment from the IMF to return to taking part in the bailout.

Greek banks have relied on emergency liquidity assistance drawn from the Greek central bank since February last year. They had borrowed 66.88 billion euros ($74.5 billion) of ELA at the end of April.

Reinstating the waiver could reduce their ELA borrowing by about 10 billion euros, one of the bankers said.

$1 = 0.8971 euros Reporting by Lefteris Papadimas, writing by George Georgiopoulos; additional reporting by Francesco Canepa in Frankfurt; editing by John Stonestreet

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