Investors heed IMF view on banks

 Systemic lenders cannot ignore market concerns over likely significant additional capital requirements

By Dimitris Kontogiannis

Greece’s four core banks have received a second round of capital injections in the last few months to address capital shortfalls identified by the Bank of Greece’s stress tests. However, an increasing number of investors are concerned that some of the lenders may be called upon to further boost their capital to deal with problem assets and extend credit to the economy following the ECB’s stress tests in the autumn. Although the IMF and others contend that the banking sector will need several billion euros more to clear its loan book, some Greek bankers and analysts dispute this, arguing that the tests will show no material capital needs, requiring new share capital increases. It is not certain who is right or wrong. Nonetheless, the fact that there is a question mark does not bode well for the economy and bank stocks.

The four systemically important banks have been able to capitalize on favorable international market conditions, improving macroeconomic fundamentals and expectations for a turnaround of the Greek economy to raise 2.25 billion euros by issuing senior bonds since April. They have also been able to raise a total of 8.3 billion by selling common equities to predominantly foreign investors in a sign of confidence in the banks’ ability to produce strong profits and handle a large amount of problem loans.

So, the poor performance of their stocks on the Athens bourse lately has raised some eyebrows. Bank shares were battered on the Athens Exchange last week and the banking stock index is now down more than 6 percent since the start of the year with the shares of National Bank and Eurobank falling by more than...