Greek banks face capital hole even if bailout agreement reached

By Yalman Onaran

Greek banks, which received two capital infusions in the past two years, may need a third one as a recession drives up losses from bad loans.

The four biggest lenders, accounting for 91 percent of the country's banking assets, could see their 12 billion euros ($14 billion) of tangible core capital wiped out by mounting provisions as overdue and restructured loans default.

Even if Greece reaches an agreement with European creditors to free up additional money, its next bailout will need to include a new round of funding for the ailing banks.

Bad loans rose last quarter as the economy slipped back into recession and Greeks delayed payments waiting for the new government to pardon debt. With the recovery stalled, the four banks -- National Bank of Greece SA, Piraeus Bank SA, Alpha Bank AE and Eurobank Ergasias SA -- could require 16 billion euros in additional provisions to cover losses if half of the 59 billion euros of overdue and restructured loans on their books sour.

"We had expected nonperforming loans to peak in the first quarter, but we now expect this sometime in 2016, subject to some kind of economic stability," said Nondas Nicolaides, an analyst at Moody's Investors Service in Athens. "There's a high risk that restructured loans and others showing signs of trouble will slip back into default. It's a possibility the banks might need another round of capital injections."

Spokesmen for National Bank, Piraeus and Eurobank declined to comment. A spokeswoman for Alpha didn't return calls.

Tax assets

Even after two previous capital infusions, including a bailout by the European Union and the International Monetary Fund, Greek banks are thinly capitalized....