Greek banks face deep surgery including closures or mergers after a bailout but they are seen getting a brief reprieve with a capital injection before the painful overhaul begins.
As part of a deal to secure new funding, Athens had to surrender much autonomy over its economy and this will include handing over more power to European institutions to decide the fate of its sick banks.
After an initial recapitalization of lenders, which could happen when a bailout is agreed in roughly four weeks, the banks face some closures, mergers and the possible sale of healthy overseas subsidiaries, European officials have told Reuters.
"The banks would have a difficult time to survive even if the sovereign is saved. They will have to write off a lot of their loans," one European official told Reuters in the run-up to the deal last weekend. "There has to be a restructuring to put them back on a sound footing."
Those preparations, other people familiar with the matter said this week, are now under way, following a last-minute deal to keep Greece in the currency bloc, albeit one that comes at a heavy price in terms of reforms, tax hikes and spending cuts.
Many bankers in Athens are braced for change.
"It is a scenario that could unfold — handing the banks an interim capital boost of around 10 billion euros to dispel any worries about their solvency and then taking a deeper look at the situation," said one senior banker.
After Athens defaulted on debt owed to the International Monetary Fund last month, the ECB refused to increase emergency funding for the banks, precipitating their temporary closure and a 60-euro daily limit on withdrawals from cash machines.
When they reopen, the relief will be short-lived as controls are likely to stay in place for some time and the banks will soon be restructured.
Key elements for such an overhaul can be found in an agreement between euro zone leaders and Greek Prime Minister Alexis Tsipras that was voted through by reluctant Greek lawmakers early on Thursday.
The agreement spells out a framework with up to 25 billion euros ($27 billion) earmarked for recapitalizing banks, "decisive action" on loans in danger of non-payment and "eliminating any possibility for political interference".
Under the deal, Greece must adopt tough European rules from next week for restructuring failing banks, paving the way for closures or mergers of weak banks with stronger rivals in Greece.
While this is needed to put the sector back on its feet, weeks after emergency funding was frozen by the ECB, it could see one or even two of the country's four best-known bank names disappear from streets, one source has said.
Furthermore, many if not all of the decisions will be taken by European authorities — and not Athens.
European Central Bank supervisors, in tandem with officials in Brussels, are likely to decide which lenders are strong enough to survive and which should be closed or merged with stronger peers.
A restructuring could follow a similar pattern to Cyprus, where one of the island's two main banks was closed as part of its stringent bailout, and Ireland, where three lenders were either shut or merged with rivals.
Of Greece's four big banks, National Bank of Greece, Eurobank and Piraeus fell short in an ECB health check last year, when their restructuring plans were not taken into account.
Only Alpha Bank was given an entirely clean bill of health.
Although the new law allows imposing losses on large deposit holders, a person familiar with the matter said that this was not likely because roughly two thirds of the money belonged to companies, whose survival is crucial to Greece.
Most rich Greeks have already withdrawn their money and could not be targeted as wealthy Russians were in Cyprus, which had a comparatively large off-shore financial industry.
There are also few bonds in issue that could be used in any "bail-in" to share the costs of fixing the banks.
To compound the problem, many of the banks' valuable assets are tied up as security for the roughly 90 billion euros of emergency central-bank funding that has been keeping them afloat.
Some of the banks have valuable foreign businesses, however, which could ultimately be sold, although there are no concrete plans to do so yet.
National Bank of Greece, for example, owns Finansbank in Turkey, which contributed 114 million euros to group profit last year and helped soften the blow of bad debts.
"The problem is that there is nothing left you can bail in," said Guntram Wolff of Brussels think tank Bruegel, reflecting on the departure of large savers. "They have run away."
© 2023 Thomson/Reuters. All rights reserved.