Troubled Piraeus Bank SA should be able to buy more time from the ECB for a €500 million capital raise that it had agreed to complete by the end of 2018, industry insiders say. But even if the bank can tap the bond market successfully, this will not solve the problem of its stubbornly high level of toxic debt.

The ECB's Single Supervisory Mechanism, or SSM, is understood to have given Piraeus until the end of the year to carry out the Tier 2 bond issue, and had not decided on a course of action were the bank to fail to meet this target. Reuters reported Oct. 12 that Piraeus had informed the ECB that it was likely to miss the target due to turbulent bond market conditions.

Piraeus is Greece's largest bank by assets, and it also has the heaviest burden of bad loans out of all the country's banks. Its nonperforming exposure, or NPE, ratio stood at 54.7% as of the end of the second quarter. NPE includes a slightly broader range of debts than nonperforming loans, usually involving a loan in which repayment is overdue by more than 90 days or has been deemed unlikely to be fully repaid without collateral realization.

Insiders close to Piraeus and the ECB told S&P Global Market Intelligence on condition of anonymity that the year-end target was more of a guide than a hard deadline, and that the SSM is likely to give the bank until June 2019 to complete its bond issue.

Piraeus itself announced Oct. 4 that it planned to raise €500 million via a Tier 2 bond issue, ostensibly to placate shareholders after the bank's shares fell by almost 30% during the day's trading Oct. 3.

Dimitris Giannoulis, equity analyst at consultancy Research Greece in Limassol, Cyprus, said the expectation is that Piraeus will get more time from the SSM to raise the money.

"The most likely scenario in my view is asking the ECB/SSM to move the deadline for raising [Tier 2] capital by six or 12 months, acknowledging adverse or tight market conditions," he said in an email.

Given that Piraeus has a common equity Tier 1 ratio of 14% and no longer relies on Emergency Liquidity Assistance from the ECB, it is "not exactly the kind of stress case" that would require authorities to kick in with a bank resolution, he said.

The ELA is a form of temporary credit from the ECB that banks can access in exceptional circumstances when they face a liquidity crunch. Piraeus announced in its second-quarter results that is was no longer reliant on ELA to keep afloat.

An Oct. 11 analyst note from Axia Ventures Group, which is also based in Cyprus, suggested that Piraeus will have more time for its bond issuance and that rumors of a hard deadline laid down by Europe may have been overdone.

"As far as we understand, there is no deadline for Piraeus to issue the instrument, which could happen in the first half of 2019," the note said.

But even if Piraeus does succeed in raising the capital, the Tier 2 bond issue will add a mere 100 basis points to its common equity Tier 1 ratio, taking it to 15%, and this is by no means the "silver bullet" that the bank needs to solve its NPE problem, the note said.

George Kessarios, analyst at Exclusive Capital Ltd. Cyprus, also said a bond issue would not tackle some of the more fundamental issues that the bank is contending with, such as a heavy bad debt burden.

"Even if Piraeus does raise €500 million, that's not enough. It might just keep them afloat," he said in an interview.

The bank's woes go beyond its own balance sheet, according to Kessarios, who said the Greek banking system as a whole is "dysfunctional" and in need of a radical overhaul.

Piraeus, along with the other three major Greek banks, Eurobank Ergasias SA, Alpha Bank AE and National Bank of Greece SA, are negotiating new, more stringent bad debt reduction targets with the SSM. The Greek banking system is dealing with some €88.6 billion of NPEs as of the end of June, according to data from the Bank of Greece SA.

As well as aiming to issue a bond, Piraeus is looking to cut its NPE burden through continued efforts to sell off portfolios of bad debt. The bank announced at its second-quarter results that it was preparing two new portfolios, comprising €800 million in toxic loans in the shipping, small business and consumer segments, for market.

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