What has happened to the Greek banks?

This week the Greek banking sector has returned to the newswires. You might think that after the storm and all the bailouts it might now be if not plain sailing at least calmer waters for it. Here is ForeignPolicy.com essentially singing along to “Happy days are here again”

The Greek banking sector has totally transformed as a result of the financial crisis. Legislation, restructuring and recapitalization have led to a sector that is now internationally recognized for its high capitalization levels and for substantial improvements in stability, governance and transparency. As Professor Nikolaos Karamouzis, Chairman of EFG Eurobank and Chairman of the Hellenic Bank Association, states, “we have been through four stress tests – no other system has been stressed as much.”

However even a view drizzled in honey could not avoid this issue.

“The question of non-performing loans in the Greek banking system is a crucial one”.
Panagiotis Roumeliotis, Chairman, Attica Bank…….About €30-35 billion is tied up in the large NPLs of some 100 companies, who are on the books of all the systemic banks.

The problem with taking sponsored content is that it steps into a universe far.far.away.

In a first for the country, Attica Bank recently securitized €1.3 billion of its bad loans. A move that could be copied by others and which its Chairman, Panagiotis Roumeliotis, says will make it “one of the healthiest banks in Greece.” Initiatives like this mean that the country’s targets for reducing NPLs are being met or exceeded.

Also I note a couple of numbers of which the first gives us perspective.

Another big challenge is recovery of deposits, which flew out of the country until restrictions were put in place in 2015. Since then, €8.5 billion has been repatriated.

Whilst that sounds a lot, compared to the decline it is not especially when we consider the time that had passed as the data here takes us to February 2017. Next comes some number crunching which is very useful for someone like me who argued all along for Greece to take the default and devalue route. Which just as a reminder was criticised by those in the establishment and their media supporters are likely to create a severe economic depression which their plan would avoid!

The 4 systemic banks have undergone 4 stress tests and 3 rounds of recapitalization since 2010, for close to €65 billion.

With all that money it is a good job they are so strong. Hold that thought please as we move to a universe beyond, far,far away.

Unlike the subprime banking crisis of other countries, the crisis in Greece wasn’t due to any particular problem in the sector. Rather, it was a consequence of the Greek sovereign debt crisis that created contagion. Coming out of that crisis, though, the sector has been transformed.

Someone seems to have forgotten all those non performing loans already.

Bringing this up to date

If we step forwards in time to the end of August suddenly we were no longer singing along to Sugar by Maroon 5. From Kathimeriini.

Greek banks Alpha and Eurobank posted weak second-quarter results on Thursday, with Alpha swinging to a loss and Eurobank barely profitable as both focus on shrinking their bad debt load.

So not exactly surging ahead and whilst the amount of support from the European Central Bank has reduced considerably we were reminded yesterday that the problem created in 2015 has not yet gone away.

On 9 October 2018 the Governing Council of the ECB did not object to an ELA-ceiling for Greek banks of €5.0 billion, up to and including Wednesday, 7 November 2018, following a request by the Bank of Greece.

The reduction of €0.2 billion in the ceiling reflects an improvement of the liquidity situation of Greek banks, taking into account flows stemming from private sector deposits and from the banks’ access to wholesale financial markets.

So that is good in terms of the reduction but as I pointed out above bad in that some is still required. After all Greece has now left its formal bailout albeit that the institutions still keep a very close watch on it. But even more significant was the next bit.

The ongoing improvement of the liquidity situation of Greek banks reflects the improved condition of the Greek financial system. The recent stock market developments in respect of the banking sector are not related to the soundness of Greek banks and are due to purely exogenous factors, such as rises in interest rates internationally and in Greece’s neighbouring countries in particular.”

We have learnt in the credit crunch era that the blame foreigners weapon is only deployed when things are pretty bad and a diversion is needed. Rather oddly the Financial Times seemed to be giving this some support.

The turbulent conditions have hit European banks across the continent, as declines in the value of banks’ holdings of Italian debt eat away at their capital base in a dangerous spiral known as the ‘doom loop’.

That applies to Italian banks yes and to some extent to others but I rather suspect we would know if Greek banks had been punting Italian bonds on any scale. Yesterday Kathimerini put the  state of play like this.

Greek banking stocks have lost more than 40 percent so far this year, and the selling pressure grew in recent days.

All rather different to the honey coated Foreign Policy article is it not? Also in the rush to blame others some genuine concerns are in danger of being overlooked.

. I disagree with the statement below Greek banks used 23% of their “real” Tier 1 capital reserves to support the reduction of NPEs. DTCs as a % of total regulatory capital are now ~75%. Banks “burned” EUR 6.6bn of “real” CET 1 capital to reduce their NPE’s by EUR 16.8bn. ( @mnicoletos on Twitter )

As you can see the argument here is that the Greek banks are finding that dealing with sour loans is beginning to burn through their capital. Using the numbers above suggests that each 1 Euro reduction in bad debts is costing around 40 cents. We do not know that will be the exact rate going forwards but if we take it as a broad brush suddenly the “high capitalization levels” look anything but and no doubt there are fears that the capital raising begging bowl will be doing the rounds again.

Piraeus Bank

This had tried to steal something of a march on the others but this from Reuters last week says it all.

Piraeus Bank  said plans to issue debt to bolster its capital were on track on Wednesday as Greece’s largest lender by assets faced a near 30 percent share price fall.

Quite why anyone would buy one if its bonds escapes me but that was and may even still be the plan.

Piraeus Bank’s restructuring plan, which it has submitted to supervisors at the European Central Bank, involves the issuance of debt, likely to be a Tier-2 bond, among other measures.

But if you are willing to take the red pill from The Matrix then maybe you might be a believer of this.

analysts said the 29.3 percent fall in its shares to 1.16 euros by 1020 GMT was the result of negative investor sentiment affecting the whole banking sector,

Comment

There is a fair bit to consider here but let us do some number crunching. We can start with this from Kathimerini referring to yesterday’s report from Moody’s.

The ratings agency said asset quality remains the main challenge for local lenders, with assets at end-June adding up to 291 billion euros and NPEs at 89 billion euros.

So should the Non Performing Exposures eat up capital at the rate described above that would be another 35 billion Euros or so.  That of course is a very broad brush but one might reasonably think that troubles in that area might be much more of a cause of this than blaming Italy and Turkey.

The banks index has followed up its 24 percent slump in September with a fresh 15 percent decline in the first seven sessions in October, sending the capitalization of the four systemic banks below 5 billion euros between them, from 8.7 billion at the start of the year. ( Kathimerini )

So 69 billion Euros has been poured into them according to Foreign Policy and of course rising for them to be valued at less than 5 billion Euros? As to what they were worth well here you are.

 

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