ATHENS – Greece saw deposit inflows of more than 1.5 billion euros in March, despite fears the Cypriot banking crisis would spark outflows in other troubled euro zone economies, the country's central bank chief said on Wednesday.
More than 19 billion euros have returned to Greece since mid-June last year when the election of a pro-bailout government eased fears of a messy Greek euro zone exit. The inflow is a fraction of the 90 billion that fled during the debt crisis.
Bank of Greece Governor George Provopoulos also followed other Greek government officials in insisting that all deposits were safe, in a bid to allay fears of austerity-hit Greeks that their savings could be at risk after a raid on Cyprus depositors as part of the island's bailout.
"There are no fears on bank deposits in Greece, they are fully protected regardless of amount," Provopoulos told parliament's economic affairs committee.
Provopoulos, also a European Central Bank Governing Council member, said Greece's 50-billion euro bank rescue package, part of its EU/IMF bailout, was based on the concept that no depositor would lose money.
A European Union rescue package last month to save Cyprus from bankruptcy inflicted heavy losses on bank deposits over 100,000 euros at the island's two biggest banks, an unprecedented move that sent jitters across the single currency zone.
Athens and its international lenders say they averted contagion from the Cypriot crisis by getting Greek lender Piraeus to buy Cypriot bank branches operating in Greece before they reopened after an extended bank holiday.
"The Cypriot problem could have affected us quite negatively had there been no readiness to transfer the Cypriot bank assets and liabilities in 48 hours. Their deposits would have been affected and the virus would have spread," Provopoulos said.
Greece's economy is in its sixth year of recession and is expected to shrink 4.5 percent this year. Data released on Wednesday showed construction activity plunged 32.6 percent year-on-year in January.
Labor unions have called a 24-hour strike on May 1 to protest against austerity and unpopular reforms Greece's international lenders have demanded in exchange for more funds.
Greece also reported its central government budget posted a smaller deficit in the first three months of the year, largely due to lower interest rate payments and spending cuts.
Greece's banking sector was shaken by the unexpected move earlier this week to suspend National Bank's
Provopoulos said the two lenders were unlikely to raise enough capital to stay private but added he was optimistic that the other two major Greek lenders - Alpha
"There is optimism that the amounts these two banks are seeking to raise from the market will be raised. There is less optimism regarding the other two (National Bank and Eurobank)," Provopoulos said.
Still, shares in National bank and Eurobank rose 26.5 percent and 29.6 percent respectively on hopes they would be able to scrape up enough support to stay private.
Greece's four big banks need 27.5 billion euros of fresh funds to restore their solvency after hits from a sovereign debt writedown and bad loans.
They have until the end of April to complete the process of recapitalization, with most of the capital to be provided by a bank rescue fund - the Hellenic Financial Stability Fund (HFSF) - in exchange for shares and convertible bonds.
To retain management control, banks must raise at least 10 percent of their common equity issues from the market, otherwise they will fall under the full control of the HFSF.
Provopoulos said the 50 billion euro bank rescue package is enough to recapitalize the systemic banks and cover the costs of winding down others deemed non-viable, leaving a cushion of 4 to 5 billion euros.
"In the eyes of depositors, Greek banks were undercapitalized," he said. "This will now be resolved. Banks will slowly start to recover, it will take time, we cannot expect miracles."
(Additional reporting by Renee Maltezou and Lefteris Papadimas; editing by Deepa Babington and Stephen Nisbet)