ATHENS (Reuters) - Greece and international lenders must recapitalize its banks by the end of the year and swiftly finalize an assessment of the country’s bailout-mandated economic reforms, EU Commission Vice-President Valdis Dombrovskis said on Tuesday.
Unless Greece’s four biggest banks are recapitalized before legislation takes effect in January, depositors will be liable for plugging capital shortfalls, he said.
“Euro group conclusions on this question are quite clear, that recapitalization of the banks is to take place after the first review, but no later than the 15th of November,” Dombrovskis told Greece’s Skai TV in an interview.
Dombrovskis - in Athens to discuss the reforms Greece needs to complete under terms of an 86-billion-euro ($95-billion)bailout - said that things would get “more complicated” if that did not happen.
“Then you need to apply the Bank Resolution and Recovery Directive ... which may imply a bail-in,” he said, referring to bank depositors being forced to contribute to recapitalization, similar to a raid on deposits in Cyprus in 2013.
Greece is talking to the European Commission, the European Central Bank (ECB), the euro zone’s European Stability Mechanism and the International Monetary Fund (IMF) on reforms. But the IMF’s participation in stumping up cash is far from certain.
“IMF participation also, to a large extent, depends on the debt sustainability analysis and a possible debt reprofiling,” Dombrovskis said.
Under the deal, Greece is set to receive up to 25 billion euros of international money to recapitalize its banks, three of which are majority-owned by Greece’s bank bailout fund HFSF.
The ECB’s Single Supervisory Mechanism is assessing the capital needs of National Bank of Greece (NBGr.AT), Piraeus (BOPr.AT), Alpha Bank (ACBr.AT) and Eurobank (EURBr.AT), and is expected to release the results of those checks on Oct. 31.
A Greek central bank source said on Tuesday stress tests would be “better than expected” but did not give a figure.
Disagreements emerged with representatives of lenders in Athens last week over Greece’s reform progress, needed to unlock a sub-tranche of 3 billion euros.
The biggest disagreement was over the mechanism to tackle non-performing loans at banks. Athens wants protection from foreclosures to cover property values of at least 200,000 euros. Lenders say the threshold should be about 120,000 euros.
Coming up with an effective mechanism to cope with bad loans is important for Greek banks because of the impact of non-performing loans on capital buffers.
Editing by Louise Ireland