ECB restores funding for Greek banks

22/6/2016

By Mehreen Khan

Another baby step to recovery?

After a near six month impasse in its latest bailout deal, Greece’s commercial banks will finally be able to access cheap loans from the European Central Bank.

Meeting for a non-monetary policy meeting in Frankfurt on Wednesday, ECB policymakers approved the reinstatement of a waiver on Greece’s junk-rated sovereign bonds, allowing them to be used as collateral to access ECB loans.

An ECB statement said:

''Governing Council acknowledges the commitment of the Greek government to implementing current ESM programme and expects continued compliance with its conditionality''

The waiver on Greece’s junk bonds was removed at the height of the country’s tensions with creditors in February last year, forcing Greek banks to rely on expensive emergency loans (ELA) to stay afloat.

But following a successful completion of the country’s first bailout review (originally penciled in for the end of 2015) and the disbursement of a €7.5bn loan tranche last week, ordinary lending can now resume, removing significant funding stresses for Greece’s beleaguered banks.

The waiver could also allow Greek banks to access free loans from the ECB in its first round of auctions under its Targeted Long-Term Refinancing Operations which begin today.

Analysts at Bank of America Merrill Lunch estimate lenders could access as much as €27bn in TLTRO funds, which will be available until March 2017.

Greece will however, have to wait a bit longer to be included in the ECB’s quantitative easing programme.

Inclusion in the bond-buying scheme is likely to be contingent on the ECB carrying out a risk assessment of Greece’s 180 per cent debt burden which could ahead of the country’s second bailout review in the autumn.

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