Europe's banks bleed from Greek debt crisis

Europe's banks have already written down billions of euros from losses on Greek government bonds and loans, and a deal agreed this week with its creditors will inflict losses of 74 percent on bondholders.

"We can't say that the writedowns are over," said Franklin Pichard, director at Barclays France. "Even if some can say that the worst is over, we are only at a new stage in terms of provisioning and not necessarily at the end."

That is because, despite the bond swap deal, bondholders could suffer further hits if Greece's economy fails to recover.

Britain's Royal Bank of Scotland has marked its Greek bonds at a 79 percent loss -- or 1.1 billion pounds -- for 2011. The state-owned bank posted a fourth quarter loss of nearly 2 billion pounds on Thursday.

FAR WIDER THAN GREECE

Problems in Europe's banking sector are far wider than Greece, however.

"We have reduced the balance sheet of RBS by over 700 billion pounds of assets. That is roughly twice the size of the entire national debt of Greece," said RBS boss Stephen Hester.

The region's banks are still repairing the damage of the financial crisis and shrinking their assets. They must also find 115 billion euros by the middle of this year to shore up their balance sheets against future shocks. But any weakening in the economy will hit earnings and make that harder to achieve.

Germany's Commerzbank , whose fourth-quarter earnings were spoiled by a 700 million euro hit on Greek sovereign debt, needs to find 5.3 billion euros to meet the stringent new capital requirements set by Europe's banking regulator. It has now lost more than 2 billion euros on its Greek bonds.