(MENAFN- The Peninsula) Capital controls imposed in Greece are likely to stay in place for months and its banks may need billions of euros of new capital or even face nationalisation under a lengthy financial rebuilding, industry sources said.
The decision to close the banks and impose capital controls from yesterday was difficult, yet re-opening them and finding a way to lift the measures could prove even tougher, experts warned.
Creditors said the door to negotiations remained open despite the government's decision to break off talks and put their latest cash-for-reforms offer to a referendum next Sunday, but that a "no" vote would signal an exit from the euro.
"In the best case scenario they manage the bank holiday, find a way to reopen the banks, stabilise the system like Cyprus, and deal with the fallout of higher NPLs (non-performing loans) and liquidity crunch. You find a path through," said a restructuring industry source who was not allowed to speak publicly.
"But the risk is you effectively have a state bankruptcy, and the banking system going bankrupt as well," he added.
A Greek bank industry source concurred: "Under a bad scenario we are in uncharted waters, (it) could end up with ruins, nationalised banks," he said.
Greece said on Sunday it was closing banks all this week and capping withdrawals from ATMs at 60 euro a day to stem the outflow of cash from banks, from which about ¤40bn ($44.7bn) of savings have flooded out this year, or a quarter of deposits.
As the prospects for a deal receded, the European Central Bank (ECB) began refusing Greece's requests to raise the amount of emergency cash it is giving Greek banks, although the ECB is expected to let them keep using existing funds until the referendum, people with knowledge of the matter said.
Greece is not the first European country to impose capital controls since the 2007/09 financial crisis, and Iceland and neighbour Cyprus showed such controls are rarely short-term.
Cyprus closed its banks for two weeks in spring 2013 and limited withdrawals. Controls remained in place for two years, but the country was praised for stabilising its financial system and preventing a long, deep recession.
Iceland imposed controls in 2008 after the collapse of its banks, and only this month started to ease restrictions.
Yesterday, most retail staff were not working in branches, but all other bank employees were at work, and so were staff responsible for replenishing ATMs.
Closing banks and restricting the flow of capital can build pressure for a solution as finances get squeezed.
"Once you start the closing of the banking system, things move quickly because every day you keep it closed you are aware of the consequences of doing so," the restructuring source said. "It's easier to close the banks than it is to reopen them. You need a very clear plan for what's going to happen next when you reopen them," he said.
The liquidity position of Greece's banks and the strength of their balance sheets are crucial to how severe and lengthy capital controls will be.
Greek banks are relying on 89 billion euros of emergency liquidity assistance (ELA) authorised by the ECB, but they are estimated to be near to using that capacity.
While Greek authorities need to limit outflows, they also need to avoid crippling cash flow in the economy or squeezing the population too hard.
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