Greek banks may need short-term nationalisation

ATHENS: Some Greek banks may have to be nationalised temporarily to cope if Europe imposes a major discount on Greek bonds as part of a euro zone rescue, a top executive of investment firm BlackRock told Greek newspapers on Sunday.

BlackRock Solutions is carrying out an audit of Greek lenders' loan portfolios, a process the Greek central bank hopes will help them regain access to market funding.

Due to Greece's debt crisis, Greek banks have been shut out of wholesale funding markets and have become dependent on the European Central Bank for liquidity.

If Greece's debt restructuring becomes more aggressive and investors continue to dump their shares, lenders will have to book serious losses and require state rescue funds to boost their capital adequacy ratios.

Craig Phillips, global head of BlackRock's financial markets advisory group, said more banks may come under state control due to the combined effect of a sharp fall in their share prices and their funding problems.

"It's a natural consequence that state funds should be given to banks and that government acquire stakes in them to restore their viability and then they would be privatised again," he told the weekly To Vima.

Greece's bank rescue fund has 10 billion euros to recapitalise the Greek banking system and that amount should grow to 30 billion once euro zone parliaments ratify the EU's rescue mechanism, the EFSF.

In an interview with the daily Kathimerini, Phillips said Greek banks have not been endangered by reckless lending but the impact of the deep recession in Greece could hurt their credit.

"The Greek banking system is quite conservative compared to the size of the economy," he said. "(The main concern is) how deep the recession will be and how it will affect borrowing".

Phillips said he expected to see more mergers in the sector, after Greece's second and third largest lenders, Eurobank and Alpha Bank unveiled a merger deal in August to tackle the crisis.

"It is expected that there will be new mergers among banks to streamline their cost and become more competitive," he said.