Liquidity stress stabilized in Greece

This year's crisis has highlighted Greek bank vulnerability in terms of liquidity and solvency despite the recapitalisation exercises in 2013 and 2014. Since the agreement and the vote in Parliament on the third bailout, the liquidity strain has eased somewhat with the ELA liquidity provision ceiling being brought down four times to €87.9bn from mid-September, consistent with a stabilisation of deposit outflows. 

"A gradual recovery and an extended period before confidence can be restored. Pre-conditions for the recovery will be programme implementation progress, bank recapitalisation, and economic improvement, before bank deposits can be expected to return and, thus, remove liquidity concerns and the remaining capital controls", says Barclays.

On the recapitalisation front, elevated uncertainty remains ahead of the overall assessment conducted by the European supervisory authorities. The size of capital shortfall should be between €5bn (baseline) to €15bn (adverse). Recent media reports stated that recapitalisation needs may be towards the high end of the €25bn available from the ESM, argues Barclays.