Daily Mail (UK)
4/30/2010
Mail Online
By Karl West
Crisis: Protesters campaign against budget cuts in Greece
Greece's banks are being hammered by a run on their reserves, leaving the country's main lenders increasingly reliant on the European Central Bank for funding. The latest figures from the Bank of Greece paint a grim picture, with foreign lenders and individuals withdrawing funds from Greek banks at an alarming rate.
Simon Ward, chief economist at fund manager Henderson, likened the situation to Britain's Northern Rock, which was eventually nationalised to save it from collapse. He said: 'If this run continues, the banking system (in Greece) will need to be bailed out and that will increase the cost of the total bail-out substantially.'
Greece is in the process of securing a £40bn-plus bail-out from the International Monetary Fund and fellow eurozone countries to help it through a debt crisis that is threatening to bring down the 16-nation monetary union.
Ward also warned, there was 'quite a strong chance' that the run on Greek lenders could spread to banks in other vulnerable eurozone countries - such as Ireland, Portugal and Spain - as investors and savers withhold funds on fears of economic contagion.
The fresh worries emerged, as credit ratings agency Moody's downgraded the financial strength ratings on nine Greek banks. Moody's said, the 'acute economic strain' facing Greece is 'materially impacting the banking sector's financial condition'. It said, this points to low business growth, pressure on banking margins and an increase in loan defaults.
The latest data reveals, Greek banks borrowed a further £6.3bn from the central bank in March to stand at £58.5bn - equivalent to around 27pc of the country's gross domestic product. Additionally, Greek lenders withdrew £3.1bn from their reserve accounts at the ECB in the month, which implies an increase in their net borrowing from the central bank of £9.4bn. Worryingly, the data reveals that foreign banks withdrew £7.1bn from Greek lenders in March, while deposits from individuals also fell by £2.3bn. This alarming outflow of funds is likely to have accelerated this month, which could leave Greek banks increasingly reliant on the ECB for funding.
However, Ward noted: 'Greek banks' ability to access further ECB funding may be constrained by a shortage of acceptable collateral.' He said, a 'significant proportion' of the £85.5bn of remaining securities held by the Greek banks may fail to meet the ECB's eligibility standards.
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