FRANKFURT (MNI) – The following is a verbatim text from the Bank of
Greece following the published results of EU-wide stress tests:
The Bank of Greece welcomes the publication of the results of the
EU-wide stress-testing exercise, which was conducted by the Committee of
European Banking Supervisors (CEBS) and national supervisory
authorities, in close cooperation with the European Central Bank. The
aim of the test was to assess the overall resilience of the EU’s banking
sector to major economic and financial shocks. The exercise represents
an important step forward in supporting the stability of the EU and euro
area banking sectors.
The exercise used a sample of 91 EU banks from 20 member-states,
covering at least 50 percent of each country’s banking sector on a
consolidated basis. Two scenarios were used for the conduct of the
exercise for both 2010 and 2011: (1) a baseline scenario, which closely
follows the consensus of macroeconomic projections for 2010 and 2011,
and, (2) an adverse scenario, which incorporates tail risks, especially
related to sovereign debt and a significant deterioration in
macroeconomic conditions. The adverse scenarios used are designed as
“what-if” scenarios reflecting severe assumptions, which are very
unlikely to materialize.
In the case of Greece, the adverse scenario includes a much sharper
economic downturn in 2010 and 2011 than currently envisaged by
international institutions, and interest-rates much higher than present
ones (see www.c-ebs.org).
The six largest Greek banking groups participated in the stress
tests – – namely, NBG, EFG Eurobank, Alpha Bank, Piraeus Bank, ATEBank
and Postbank. These banks account for more than 90 percent of the Greek
banking sector’s assets (excluding foreign banks’ subsidiaries).
Results
For the six banks as a whole, the results indicate a net surplus of
Tier 1 capital of the order of E3.3 billion above the 6 percent ratio
of Tier 1 capital that was agreed as a benchmark solely for the purpose
of the stress test. This benchmark, however, should not be construed as
a supervisory minimum; the supervisory minimum for Tier 1 capital is set
at 4 percent. It should also not be construed as a target level that
reflects each institution’s risk profile as set in the context of
supervisory function in the application of Pillar 2 methodology, defined
by the EU Directive (EC/2006/48).
The individual results for the six banks’ are available on their
websites. The results show that under the adverse scenario including
sovereign shock five of the six banks pass the test. Four of these banks
(Postbank, Alpha Bank, EFG Eurobank, NBG) come in above the benchmark ,
while one (Piraeus) comes in at the benchmark of 6%. For ATEbank, the
Tier 1 ratio falls to 4.4 percent at the end of 2011, indicating a
shortfall of E242 million.
It is important to emphasize that, under the baseline scenario, all
six Greek banks exceed the 6% benchmark.
Comments on the results
In order to properly interpret the results, it is crucial to
recognise the exact significance both of the indices used and the
monetary amounts resulting from the application of the various
individual scenarios that were constructed for the purposes of the
EU-wide exercise. The results under the adverse scenario reflect neither
the present situation nor the possible immediate capital needs. By
construction, a stress test does not aim to predict expected outcomes,
as the various scenarios are intentionally constructed as “what if”
scenarios.
At the end of 2009, the six participating banks had Tier 1 ratios
between 8.4 percent and 17.1 percent. Although the application of
extremely adverse assumptions would lead to a decline of the Tier 1
ratio ranging from 3 to 7 percentage points, the high starting point
allowed four of the six Greek banks to remain above the 6 percent
benchmark, and one bank to be at the 6 percent benchmark.
The significant capital increases that took place in 2009 underlie
the Greek banks’ performance. This enhancement was mainly the result of
the increase in supervisory own funds. The main factors that contributed
to the increase in supervisory own capital were: the capital raised by
several banks from the market, internal financing through retained
earnings as no dividends were distributed in 2009, as well as the
issuance of preference shares.
The Bank of Greece will closely monitor the developments and will
ensure that necessary steps are taken to increase capital adequacy of
banks where needed. In any case, the establishment of a E10 billion
Financial Stability Fund, in the context of the Greek economy’s support
program, provides a safety net for banks’ capital adequacy. In addition,
E1.2 billion is available through the issuance of preference shares.
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