Over the past few years, the Bank of Greece, in close cooperation with the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), successfully completed an ambitious programme for the restructuring of the banking sector, through the creation of a strong, efficient and viable banking system.
In this new environment, the Bank of Greece conducted a follow-up stress test, as envisaged in the Memorandum. For the purpose of the exercise, the Bank of Greece adopted a rigorous approach, in order to ensure that the results would be sufficiently conservative, using the results of the independent diagnostic study conducted by BlackRock Solutions on banks' loan portfolios. It should be noted that the new BlackRock study was more comprehensive in terms of methodology, samples and analysis than the 2011 exercise.
The report describes in detail the impact on estimated capital needs of banks for 2013-2016 using (i) credit loss projections on total loans granted in Greece and abroad and (ii) the estimated operating profitability of banks, based on a conservative adjustment of restructuring plans submitted by banks to the Bank of Greece during the fourth quarter of 2013. In carrying out the exercise, the Bank of Greece was supported by leading consulting and auditing firms, namely BlackRock Solutions, Rothschild and EY.
The capital needs of all Greek commercial banks were estimated on the basis of the Baseline Scenario at €6.4 billion. The Bank of Greece considers, under reasonable levels of economic uncertainty, that the estimated capital needs for the time horizon of the exercise (June 2013-December 2016) will be covered by capital buffers already incorporated in the exercise, banks' mitigating actions (e.g. private sector participation in future capital increases, Deferred Tax Assets allowance, potential assets sale, etc.) and the untapped part of the Hellenic Financial Stability Fund's backstop facility. Furthermore, the Bank of Greece asked banks to submit, within a reasonable time frame - at the latest by mid-April, their capital enhancement plans and relevant timeline on the basis of the capital needs under the Baseline Scenario.
The material published by the Bank of Greece includes:
• The 2013 Stress Test of the Greek Banking Sector (in English)
• An overview of the Report in Greek (Chapter I of the Report)
• The methodology used by BlackRock Solutions to carry out the diagnostic study (in English)