Greece's Piraeus Bank Taps Emergency Funding
Greece's fourth-largest bank Piraeus has been forced to make use of emergency funding from its own central bank after running out of eligible collateral needed to access cheaper European Central Bank funds.
Greek banks have become dependent on the ECB for liquidity after being shut out of wholesale funding markets due to concerns about the country's sovereign debt.
Some are now strapped for eligible collateral after a series of sovereign credit downgrades, with Eurobank on Monday and Piraeus on Wednesday admitting the need for emergency funding.
"We have accessed the ELA mechanism in the third quarter," a Piraeus official said in a conference call after the bank reported a first-half loss of 820 million euros.
"It gives us more room to move, more flexibility. It's more expensive than ECB borrowing. The cost is about 3.5 percent versus 1.5 percent at the ECB."
Emergency liquidity assistance (ELA) is effectively lending by the national central bank to illiquid but solvent banks.
Hit by steady deposit outflows, Greek lenders have already borrowed more than 100 billion euros from the ECB, using Greek bonds as collateral.
Analysts said recourse to the ELA facility, brought about by a depletion of ECB-eligible collateral and a freeze on a 30 billion euro programme of state guarantees, could deal a blow to bank profit margins if it becomes a big part of their funding.
"If use of ELA will be to cover marginal liquidity requirements, the impact on the overall funding cost will not be big despite the higher cost of the facility," said analyst Nick Koskoletos at Eurobank Securities in Athens.
"But if the ELA window is used to cover larger liquidity requirements and for longer time periods, then the increased cost could erode profitability margins."
Piraeus Bank's combined dependence on ELA and ECB liquidity matched the level of its ECB exposure at the end of the first half -- 18.6 billion euros, a Piraeus official told Reuters.
Its Managing Director Alex Manos told Reuters the ECB was not keen on taking on more Greek bonds as collateral.
"There is resistance from the ECB because it is viewed as creating a moral hazard. They say use ELA even if it's more expensive; its part of a bigger political debate," Manos said.
On Monday Eurobank's Deputy CEO told analysts on a conference call the bank had made use of ELA for a "small amount", according to a transcript.
Greek government bonds put up as collateral for ECB funds are subject to large discount, or "haircut".
"One reason for this (ELA usage) is that the haircut at the ECB is a limit on the quantity of money they can borrow," said ING strategist Alessandro Giansanti. ELA has less requirements in term of collateral, so it's easier for banks to get their refinancing."
Piraeus said the net loss in the first half of the year was due to its participation in a voluntary debt exchange (PSI) programme aimed at relieving Greece's debt burden. This resulted in a 1 billion euro pretax writedown.
The bank's shares ended down 14.5 percent at 0.65 euros. Eurobank shares tumbled 17.1 percent to 1.6 euros.
Sovereign debt downgrades, deposit outflows and rising loan losses in a deepening recession have forced Greek banks to explore tie-ups to bolster their financial strength in a bid to regain access to wholesale funding markets.
On Monday, Greece's second- and third-largest lenders Eurobank and Alpha Bank agreed to merge to form the largest bank in southeast Europe, sparking expectations of further deals in Greek banking.
Piraeus Bank's participation in the so-called private sector involvement (PSI) will see almost all of its Greek government bonds exchanged for new, principal-guaranteed paper.
"About 99 percent of our Greek government bonds are in scope for the PSI as they mature by 2020 and will be replaced by safer bonds. We differ on this from most other banks. We will start with a clean slate," Manos told Reuters.
Piraeus had a Core Tier 1 capital adequacy ratio of 8.2 percent at the end of June. Manos said that after the debt exchange and other mitigating measures, including plans to sell its Egyptian operation, the ratio would rise to 10 percent.
Egypt's central bank has allowed due diligence, and Standard Chartered considering buying Piraeus's Egyptian subsidiary.