ATHENS, Oct. 5 (Xinhua) -- The Greek government is working on plan to create an asset protection scheme that would offer state collateral for bad loans in local banks' portfolios, Greek state-run news agency AMNA reported on Thursday, citing sources from the country's finance ministry.
According to the same sources, the initiative would be just a small part of the government's strategy toward the reduction of the burden of non-performing exposures on banks, whose sectoral index in the Greek stock market dropped to a 32-month low on Wednesday.
Reports in the Greek media said this was a proposal by the Hellenic Financial Stability Fund, the state body that controls a stake in all four major lenders of the country.
Reports also said the European Stability Mechanism (ESM), Greece's biggest creditor, is contributing in the initiative, a claim that the ESM refuted on Friday in a statement.
"The ESM is following closely the latest developments in the Greek financial sector. However, press reports about the ESM being part of preparatory work for a possible intervention plan in favor of Greek banks are wrong," the statement read.
Pressure on Greek stock prices has continued after the end of Greece's bailout program on Aug. 20, and the lifting of all controls on the withdrawal of cash from domestic bank accounts since Oct. 1, a move that international rating agency Moody's qualified this week as "credit positive" for the local banking sector.
Finance Minister Euclid Tsakalotos assured speaking in Parliament on Thursday that "the Greek banks are in a very good position, they have their challenges ahead of them and they meet them."
The challenge of the bad loans can be dealt with entirely and deposits are returning to all Greek lenders, the minister said.
Nevertheless Deputy Prime Minister Yiannis Dragasakis outlined a series of factors that cause concern for banks, in a radio interview on Thursday.
He cited among others the lenders' first-half financial results and the stricter targets for the reduction of non-performing exposures by 2021 that are more demanding.
Piraeus Bank, in particular, has seen its capitalization plummet in the stock market as its stock price has dropped over 60 percent since April 30.
The lender, Greece's largest in asset terms, has pledged to the Single Supervisory Mechanism of the European Central Bank to issue a 500-million-euro (575-million U.S. dollars) bond by the end of the year in order to boost its capital base.
Its chief executive officer Christos Megalou stated on Tuesday that "there is still some flexibility till the end of the year" so that the issue will take place when the time is right. (1 euro=1.15 U.S. dollars)
