Bonds News

UPDATE 2-Greek banks ask for rest of EUR28 bln support deal

* Some 17 bln euros remain, mostly in state guarantees

* Banking source says request made last week

* Finance ministry, central bank discussing allocation

* Greek bank shares slip further

(Adds analyst, non-performing loans, deposits)

By Lefteris Papadimas and Harry Papachristou

ATHENS, April 7 (Reuters) - Greek banks have asked for access to the remaining part of a 28 billion euro state support package, highlighting pressure on the sector from the country’s recession and spiralling borrowing costs.

Greek bank shares initially trimmed losses after the announcement but later fell because growing worries over Athens’ ability to handle its mountain of debt drove the country’s yield spreads to a fresh euro lifetime high.

Data also showed Greek bank deposits had fallen 8.4 billion euros, or 3.6 percent of the total, since December.

That resembled figures some international media had reported were part of a wave of people taking cash out of Greece, but analysts said it was most likely due to effects of the recession and could not yet be judged as a significant amount.

They added that the banks’ request for aid could help the lenders face possible liquidity problems in the short term but would not reverse a grim outlook.

About 17 billion euros ($22.7 billion), mainly in state guarantees, remain in the scheme launched in 2008 to help Greek banks deal with the global credit crisis.

“The banks have asked to use the remaining funds of the support plan ... They want to have additional safety, now that the economy and the banking system are under pressure,” Finance Minister George Papaconstantinou told reporters.

Some of the aid would come in the form of Greek government bonds, which the banks could use as collateral for loans from the European Central Bank, which said last month it would continue accepting them even if Greece’s credit rating was cut.

A banking source who wished not to be named said Greece's four largest banks -- National Bank of Greece NBGr.AT, Eurobank EFGr.AT, Alpha Bank ACBr.AT, and Piraeus Bank BOPr.AT -- had made the request to access the support package's remaining funds last week. A decision on the allocation could happen by the end of the week, the source said.

The banks have already made use of part of the plan’s funding by issuing preferred shares to the state in exchange for capital injections. But the biggest part of the package, mainly state guarantees, was left unused.

The Mediterranean country’s banks had originally been largely sheltered from the global crisis thanks to a low exposure to toxic assets. But investors have hammered their stocks since the country revealed in October last year that its budget deficit and debt were far higher than previously announced.


Some analysts said banks might not tap the funds immediately but want to make sure they have access to them as a precaution.

“We’re in uncharted territory,” said Constantinos Manolopoulos, analyst at Investment Bank of Greece.

“The outlook for Greek banks’ profitability is definitely negative for this year. It will take many years before Greek banks see again the kind of profits they earned in 2008.”

Bank stocks closed 4.2 percent lower. They have lost 20 percent so far this year, underperforming a 9 percent drop by the general Athens stock index .ATG.

The IMF head for Europe, Marek Belka, said last week that Greek banks would need safety-net measures ahead to be able to cope with the ailing economy. [ID:nLDE62S1XZ]

Greek banks have repeatedly said they face no liquidity problems, but the government’s spiralling borrowing costs have driven up their risk premiums, making it harder to borrow and hurting the value of the state bonds in their portfolios.

Fiscal tightening, rising non-performing loans, and a growth outlook that is expected to hit profits have weighed, making them more dependent on funding from the ECB and helped prompt a string of ratings downgrades. [ID:nLDE61N0GW]

The central bank data showed business and household bank deposits had fallen 1.4 percent to 229.5 billion euros month-on-month in February. They were down by 8.4 billion from December, and analysts said they would closely watch the trend. [ID:nLDE6361KS]

“The contraction in the growth of deposits can be partly due to the slowdown in the economy and uncertainties related to sovereign credit risks and tax law changes,” said an economist at one Greek bank. “But overall it’s not very significant. We’ll have to look at the data in March and April.”

ECB data, which also includes interbank deposits, has shown no clear trend for deposit flows out of Greek banks. [ID:nLDE6350SY]

In a further sign of the banks’ woes, the country’s central bank said on Wednesday non-performing loans in the banking system rose further in the last quarter of 2009, bringing the full-year ratio to 7.7 percent. [ID:nLDE6360QK] ($1=.7483 Euro) (Additional reporting by Angeliki Koutantou, Renee Maltezou and George Georgiopoulos; writing by Ingrid Melander; editing by Andrew Torchia and Stephen Nisbet)