By Jan Strupczewski and Francesco Guarascio
BUCHAREST (Reuters) - Euro zone finance ministers agreed on Friday to disburse 970 million euros (833.49 million pounds) as a grant to Greece as part of a post-bailout programme of monitoring reforms, euro zone officials said.
The money was conditional on Athens respecting its reform commitments, especially a law on banks' recovery of debt that goes bad, which will help reduce the large burden of non-performing loans on Greek lenders' balance sheets.
"We encouraged the Greek authorities to continue the implementation of all key reforms," the chairman of euro zone finance ministers Mario Centeno told a news conference.
The money comes from profits made by euro zone central banks on Greek government bonds and the reduction to zero of the step-up interest margin on certain euro zone loans to Athens.
"In cash this adds up to a grant of 970 million euros. It also sends investors a positive signal of continued ownership of the reform agenda in Greece, and you can see this already going on in the markets today," Centeno said.
Yields of Greek benchmark 10-year bonds fell from 3.609 pct at opening on Friday to 3.511 percent on the news before rebounding to 3.544 percent.
The funds will boost Greece's already large cash buffers and are a signal for investors that Greek economic policy has the stamp of approval from the country's largest creditor -- the euro zone.
Greece exited its last bailout in August after eight years of financial support from euro zone governments and the International Monetary Fund (IMF).
The head of the euro zone's bailout fund Klaus Regling told the news conference it would make sense for Greece to repay early the loans it got from the IMF, because some of them were very expensive.
"Out of the 9.5 billion outstanding debt to the IMF, on one third, 3.5 billion, Greece has to pay almost 5 percent interest rates, so that's substantially higher than what Greece pays in the markets," Regling said.
The grant is the first disbursement from a package of some 4.8 billion euros that euro zone creditors have pledged to Greece until 2022 as part of the post-bailout programme, which requires Athens to continue reforms.
(Reporting By Jan Strupczewski and Francesco Guarascio; Editing by Raissa Kasolowsky)