ECB reinstates Greek waiver in boost for nation’s lenders

Bloomberg

The European Central Bank reinstated a waiver on Greek debt, allowing the nation’s banks more access to cheaper refinancing lines but stopping short of including such bonds in quantitative easing for now.
The ECB “decided to reinstate the waiver affecting the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic,” the institution said in a statement after a Governing Council meeting in Frankfurt.
“The decision suspends the application of the minimum credit rating threshold in the collateral eligibility requirements for these instruments,” the ECB said, allowing lenders to pledge junk-rated Greek sovereign notes against regular central bank funding.
The ECB only accepts sub-investment grade sovereign bonds as collateral when the issuing euro-area country is under a macroeconomic adjustment program, which is on track. This waiver had been suspended since February 2015 when Prime Minister Alexis Tsipras’s new government said it wouldn’t meet the terms of the nation’s then-bailout program, forcing lenders to seek additional funds through the so-called Emergency Liquidity Assistance facility, extended by the Bank of Greece.
The reinstatement was decided after euro-area governments last week approved the payment of €7.5 billion ($8.5 billion) of aid for Greece, ending months of wrangling over the nation’s economic reforms. The payout will cover Greece’s debt-servicing needs as well as the clearing of some arrears to suppliers and vendors.
The decision could result in an after-tax net-interest income benefit of as much as €55 million for Greece’s 4 biggest banks, according to analysts at Athens-based Euroxx Securities, as ELA funding carries a cost of 1.5 percentage points over ECB’s main refinancing rate, which currently stands at zero. The final impact will depend on the haircut applied to the nominal value of these assets, analysts led by Vangelis Karanikas said in a note to clients on Thursday.
“Although we consider the reinstatement of the waiver essential for the improvement of depositor and investor confidence on the domestic banking sector, it will not, however, materially improve the core Greek banks’ funding costs due to limited collateral eligibility,” the analysts said.

QE Wait
Uncertainty over the prospects of Greece’s bailout program and the country’s place in the euro area triggered a run on deposits and slashed the market value of Greek banks in 2015. Bank shares have dropped another 17 percent this year, as capital controls, imposed last June to stem deposit outflows, as well as bad loans weigh on investors’
expectations.
Even as the ECB decided to accept Greek notes as collateral for funding lenders, it won’t start buying these assets under its quantitative easing program just yet.
“The Governing Council will examine possible purchases of Greek government bonds under the public sector purchase program at a later stage,” the ECB said in the statement. The decision will take “into account the progress made in the analysis and reinforcement of Greece’s debt sustainability, as well as other risk management considerations.” Even then, the central bank may run into self-imposed limits on how much Greek debt it can buy. It set issue and issuer share limits of as much 33 percent on its sovereign-bond buying to avoid gaining a blocking minority in case of a debt restructuring.
The ECB already holds a large volume of Greek debt acquired under a previous asset-purchase program that was terminated in 2012.