ECB stops lending to some Greek banks

The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signalled the ECB won't compromise on key principles to keep Greece in the euro area.

The Frankfurt-based ECB said it will push the responsibility for lending to some Greek financial institutions on to the Greek central bank until they have sufficiently boosted their capital. "Once the recapitalisation process is finalised, and we expect this to be finalised soon, the banks will regain access to standard Eurosystem refinancing operations," the ECB said.

The move comes after Draghi acknowledged for the first time that Greece could leave the monetary union.

While the bank's "strong preference" is that Greece stays in the 17-nation euro area, the ECB will continue to preserve "the integrity of our balance sheet", he said.

"A Greek exit was seen as an absurdity up to now," said Thomas Costerg, an economist at Standard Chartered Bank in London.

"It is gradually becoming the main scenario. The ECB is prioritising its balance sheet over monetary-union geography."

Greece faces a fresh election that may boost parties opposed to the conditions of its international bailouts, raising the spectre of its exit.

A €130 billion ($216 billion) bailout earlier this year provided a €50 billion fund to recapitalise Greek banks after they reported losses from the country's debt restructuring.

Greece's four biggest banks are waiting for European Union approval to receive €18 billion of bonds issued by the European Financial Stability Facility for their recapitalisation, business newspaper Imerisia reported yesterday.

- Bloomberg