Shares in the National Bank of Greece (NBG) plunged by 13.6 percent in afternoon trading on Monday as plans for a merger with Eurobank were suspended and investors were seized by concern over a possible nationalisation.
Eurobank bounced back from early losses to show a jump of 20.0 percent meanwhile, while Piraeus Bank was 3.13 percent higher and Alpha bank had gained 2.81 percent following an announcement by the Greek central bank that the country's four biggest banks would be recapitalised separately, meaning that a planned merger of NBG and Eurobank had been put on hold.
The Athex index of leading shares was up by 0.42 percent overall, while a sub-index of banking stocks was down by 3.08 percent as talk of a possible nationalisation circulated in Athens.
In initial trading, NBG and Eurobank had plunged by around 30 percent before Eurobank bounced back as investors digested the information.
Trading volumes in Athens are relatively small, which can lead to volatile swings in share prices.
A banking source close to the recapitalisation process told AFP that NBG and Eurobank might now come under the control of the Hellenic financial stability fund (HFSF).
"NBG and Eurobank management will probably be taken over by the state, namely by the Hellenic fund which works in full cooperation with the troika," the source said in reference to a trio of international creditors, the International Monetary Fund (IMF), the European Union (EU) and the European Central Bank.
"The other two banks (Alpha, Piraeus)... should stay under private control," the banking source added.
Meanwhile, "deposits at NBG and Eurobank are absolutely safe," government spokesman Simos Kedikoglou told the television station Antenna.
He added however that "the two banks could not raise the 10 percent of new capital (they needed) from private investors."
On Sunday, a finance ministry source announced a suspension of the NBG-Eurobank merger, pending individual recapitalisations of each of the four banks, a decision confirmed on Monday by the two banks.
"The relevant regulatory authorities, with the consent of the management of both banks, have decided that NBG and Eurobank will be independently recapitalised in full. As a consequence, the merger process of the two banks is being suspended," Eurobank said.
Greece's creditors had expressed concern that the mooted entity created through a NBG-Eurobank merger would dominate the market and be hard to recapitalise.
A central bank statement said on Sunday that the recapitalisation process "is proceeding normally and will conclude in April."
All four banks are to hold shareholder meetings to approve capital increases this week, the central bank added.
Private investors were initially expected to provide the 10 percent minimum of new capital required to avoid an effective nationalisation.
Recapitalising the weakened Greek banks is an important condition for gaining access to vital EU-IMF rescue loans.
The troika is currently conducting an audit in Athens that will determine whether Greece will receive 2.8 billion euros ($3.6 bn) in loans that have been pending since last month.
Of the overall 240 billion euros that the EU and IMF have committed to Greece since 2010, 50 billion have been earmarked to recapitalise Greek banks that suffered heavy losses last year as part of a writedown of the country's sovereign debt held by private investors.
That writedown was worth more than 100 billion euros.