GREECE HANDED €18 billion to its four biggest banks yesterday, allowing the stricken lenders to regain access to European Central Bank funding.

The long-awaited injection – via bonds from the European Financial Stability Facility rescue fund – will boost the nearly depleted capital bases of National Bank, Alpha, Eurobank and Piraeus Bank.

The bridge recapitalisation was completed with the transfer of funds of €18 billion from the Hellenic Financial Stability Fund (HFSF).

“This capital injection restores the capital adequacy level of these banks and ensures their access to the provision of liquidity funding from the European Central Bank and the Eurosystem. The banks have now sufficient financial resources in support of the real economy.”

The HFSF was set up to funnel funds from Greece’s bailout programme to recapitalise its tottering banks. It allocated €6.9 billion to National Bank, €1.9 billion to Alpha, €4.2 billion to Eurobank and €5 billion to Piraeus. All four are scheduled to report first-quarter earnings this week.

So far the HFSF has received €25 billion under the scheme, and the €18 billion it disbursed yesterday is its largest payout to banks.

The move came as Spain’s cost of borrowing jumped on the back of worries over the country’s banking system and as the cost to the state of taking over Bankia eroded bond market sentiment.

Spreads on Spanish 10-year bonds over German Bunds hit new euro-era highs, climbing to 511 basis points.

Yields on Spain’s 10-year government bonds briefly moved above 6.5 per cent, moving closer to the 7 per cent level that led to bailouts for Ireland Greece and Portugal.

While a possible Greek exit from the euro remains a concern, investors are also nervous about the health of Spain’s banks, which lent heavily during a property bubble and are sitting on €180 billion of bad loans. Many analysts feel that moves by Mariano Rajoy’s government to deal with worries at Bankia and the wider economy have not gone far enough. - (Reuters/Financial Times Service)