August 5, 2015 / 2:30 PM / 4 years ago

Greece, lenders see need for bank recapitalization by year-end

ATHENS (Reuters) - Greece and its international lenders want the country’s struggling banks to be recapitalized by the end of the year, Greece’s finance minister said on Wednesday, a move that would avoid new rules forcing large depositors to pay for some of it.

Finance Minister Euclid Tsakalotos said that both sides discussing a new bailout for Greece were on the same page regarding the speed needed for recapitalization.

“We discussed the recapitalization issue of Greek banks. They (creditors) want, as do we, to complete the process soon ... by the end of the year,” he told reporters after a meeting with representatives of the European Union and the International Monetary Fund.

The EU estimates that the Greek banking sector will need anything from 10 billion euros to 25 billion euros, but the exact amount needed would depend on the results of stress tests and asset-quality reviews.

Greek banks have seen billions of euros flow out of accounts this year as the potential for Greece being thrown out of the euro zone grew. Capital controls were imposed to stop the flow.

Shares in the country’s listed banks have crashed since the stock market opened on Monday after a five week shut down as part of the capital controls.

The bank sector index .FTATBNK has lost 63 percent in the three sessions since Monday.

STRESS TESTS

Part of the reason is concern about recapitalization, which will mean that existing shareholders will see their holdings diluted.

The stress tests and asset reviews may take some time, but the negotiators are keen to get it done by the end of the year when so-called bail-in rules kick in.

These would mean that large depositors, including companies, would lose money as part of the recapitalization program, taking a haircut or charge.

“They (the creditors) also agree that there must not be a haircut on bank deposits,” Tsakalotos said.

One of the biggest losers in the bank-stock rout, meanwhile, may have been the Hellenic Financial Stability Fund, which pumped 25 billion euros into Greek banks in exchange for shares in 2013, becoming their major shareholder.

It has no remaining fund to plug capital shortfalls as its remaining cushion of 10.9 billion euros was returned to the European Financial Stability Facility earlier this year.

Writing by Jeremy Gaunt; editing by Ralph Boulton

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