The European Central Bank is expected to reinstate Greek banks’ access to its cheap funding operations as soon as Wednesday, allowing lenders to come off an expensive emergency lifeline after more than a year as a reward for painful economic reforms.
The funding access would big step in normalising an economy still in recession, weighed down by capital controls and adjustments related to its third bailout since 2010 worth up to €86bn.
Greek banks lost their access to the ECB’s regular funding operations early last year when Athens came to the brink of being ejected from the eurozone.
Bringing his nation back from the edge of the cliff, Prime Minister Alexis Tsipras has since then pushed through a slew of painful measures, including a reform of the pension system and the privatisation of state assets, such as ports and regional airports.
With economic contraction for most of the past decade, Greece has lost over a quarter of its GDP since its peak in 2007 and unemployment stands around 25 per cent.
While Greece’s debt is rated ‘junk’ by credit agencies, the ECB was set to waive its minimum credit rating requirement at its Governing Council meeting on Wednesday, sources told Reuters earlier, letting banks post government-guaranteed debt as collateral in exchange for normal funding.
Speaking to a European Parliament committee on Tuesday, ECB President Mario Draghi said Greece has made significant progress, qualifying for the next tranche of aid, so the ECB Governing Council would consider the issue.
The credit requirement waiver would also be the first step to including Greece in the ECB’s €1.74 trillion asset-purchase programme, though that will require further deliberations and a debt sustainability review.
“The reinstatement of the waiver for Greek assets by the ECB could benefit Greek core banks’ net interest income by as much as around €80m – after tax at around €60m – depending on the eligibility of the Greek assets and the level of haircut imposed,” Greek brokerage Euroxx said.
“This, in our view, will be essential for the reduction of Greek banks funding costs, which along with the gradual easing of capital controls should also help the all-important return of deposits into the system,” it said.
The ECB’s waiver does not automatically solve Greek bank’s funding problems as they will still have limited eligible collateral so they can only switch a minor part of their €64.8bn worth of Emergency Liquidity Assistance (ELA) to the ECB’s regular funding operations.
Though the exact details of ELA are not published, the average interest rate charged on it is estimated to be around 100 to 150 basis points above the ECB’s main refinancing rate, currently set at 0 percent.