Draghi, Dijsselbloem point to 'stress tests' for Greek banks before Aug. 2018

Greece’s four systemic lenders will undergo “stress tests” before the current bailout program for the country ends in August 2018, if statements by two top European leaders on Monday are any indication.

European Central Bank (ECB) President Mario Draghi and Eurogroup chairman Jeroen Dijsselbloem both touched on the issue in separate comments, with the latter speaking during his visit to Athens.

The development is essentially a compromise by European creditors vis-à-vis the IMF’s pressure for a stricter assessment of Greece’s thrice recapitalized banks. The Fund’s top leadership has also repeatedly said that an Asset Quality Review is necessary for Greek banks.

Speculation over looming stress tests, in fact, has repeatedly taken a toll on banks’ shares on the Athens Stock Exchange.

Both European leaders said the goal was for stress tests to be concluded at a “reasonable time” before the bailout officially ends in August.  Reuters, in fact, quoted one ECB official as pointing to a conclusion of the process by the beginning of May 2018.

Stress tests for European lenders are scheduled in October 2018, when Greek banks would have been included. Nevertheless, the IMF’s standing pressure over the matter apparently won out.

The reasoning behind the stepped up stress tests for Greek banks holds that if yet more recapitalization is necessary, then left over funds from the current 86-billion-euro bailout can be utilized, or, alternately, banks can proceed with a share capital increase.

Current estimates hold that out of the 86-billion-euro credit line extended by institutional creditors, Greece can absorb at most 50 billion euros by next August.

Another common goal cited in off-the-record comments by creditors’ top representatives is for Greece’s systemic banks to be in a strong position once the country exits the support memorandums.