Greece activates bank rescue fund to save Proton Bank

Greece's central bank said on Monday that it had activated a bank rescue fund to save Proton Bank, effectively nationalising the small lender that is under investigation for possible violations of the country's money-laundering laws.

It is the first lender to be nationalised under the Financial Stability Fund (FSF), a safety net set up by Greece and its international lenders for banks that need to recapitalise but cannot raise funds in the market.

Analysts said the move had to do with Proton's own business problems and not with the country's severe debt crisis.

"After recommendation by the Bank of Greece, the Finance Ministry proceeded to apply to Proton Bank a new law about the restoration of banks," the Bank of Greece said in a statement.

The Bank of Greece said Proton was split into a "good bank" where all of its private sector, government deposits and sound assets were transferred. The good bank will have the FSF backstop as its sole shareholder and retain the trade name Proton.

"The 'good bank' is well capitalised, with a capital adequacy ratio that is well above the regulatory threshold. It has access to euro-system liquidity through the Bank of Greece," the central bank said.

According to the finance ministry, the new Proton Bank has a capital adequacy ratio of 10.6 percent. The Bank of Greece has told the country's lenders they will have to maintain a Core Tier 1 ratio of 10 percent from January 2012.

Proton, with a network of 31 branches and a current market value of about 11 million euros, had total assets of 3.8 billion at the end of the first quarter.

The central bank said the licence of the old Proton Bank was withdrawn and it was put into liquidation. The proceeds of the liquidation will be used to cover the claims of third parties. Proton shareholders will rank as last claimants.

"The new bank, free of the deficiencies of the previous bank, is financially sound and will continue its operations normally," the Bank of Greece said.

REUTERS