Greek banks: Where are they now? (Financials)

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Greek banks: Where are they now? (Financials)

Shrey Srivastava

22/11/18

The most severe economic depression for any country since the United States in the early 20th century (Chatham House, 2018) was the recession faced by Greece following the 2007-2008 financial crisis. Looking at the impact on some of the largest private banks in Greece, it remains clear that the road ahead is paved with uncertainty and doubt over these banks’ abilities to survive any future financial crises. During the financial crisis, Greek banks accumulated large portfolios of so called “non-performing loans”, essentially debt obligations owed to them which are now highly unlikely to be repaid (Reuters, 2018).

Now, banks such as Piraeus Bank SA and National Bank of Greek SA have accumulated huge non-performing exposures (NPEs) yet again, equivalent to 47.6% of Greek banks’ overall loan book (Reuters, 2018). Austerity measures implemented by the Greek government due to pressure from the IMF (Chatham House, 2018) have caused consumption to stall and the Greek debt-to-GDP ratio to rise from 127% to around 170% (European Union, 2018). This may lead to a credit crunch, theoretically impacting Greek banks as there are not as many creditworthy individuals and firms to lend to and this may cause a cycle in which consumption continues to fall and GDP continues to shrink. Although stress tests conducted by the European Union have cleared all Greek banks (with only Piraeus having to raise $580 million in subordinated debt) (Bloomberg, 2018), the composition of their capital remains concerning. This is because a large proportion of it is comprised of “deferred tax assets” (Bloomberg, 2018). Because of the banks’ past losses, the Greek government has granted them these future tax deductions, however actual realisation of these gains by Greek banks is uncertain, given the fiscal position of the Greek government itself.

The European Central bank is trying to take action by making a target for Greek banks to, on average, bring their gross non-performing loans ratio to below 20% by the end of 2021 (Bloomberg, 2018). However, Piraeus and Alpha are expected not to make this target and there are concerns that such measures would hurt Greek banks’ profitability further (Bloomberg, 2018). Moreso, Greek economic growth remains anaemic and has only been slightly positive for the past year (Trading Economics, 2018). This could potentially have an impact on the future profitability of Greek lenders, as the creditworthiness of the general population is still not growing at a rapid enough pace for these firms to expand their lending activities significantly.

To summarise, it remains clear that the scars of the Greek debt crisis and subsequent negotiations with the EU and the IMF are still very much clear to see. Based on past growth, it is unlikely that Greece will see significant economic growth in the near term which adds to the woes of the country’s struggling financial sector. The company to perhaps watch out for the most is Piraeus, as its market capitalisation has fallen by 60% in the past year alone (Bloomberg, 2018). Moreso, it was the only bank required by the ECB to raise a sum of subordinated debt. Overall, then, it seems that investor confidence in the Greek financial system and Greek banks is unlikely to return anytime soon.

 

Bibliography:

[1] Chatham House. (2018). Greek Bailout: IMF and Europeans Diverge on Lessons Learnt. [online] Available at: https://www.chathamhouse.org/expert/comment/greek-bailout-imf-and-europeans-diverge-lessons-learnt# [Accessed 21 Nov. 2018].

[2] European Union. (2018). Eurostat – Tables, Graphs and Maps Interface (TGM) table. [online] Available at: https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=teina225&plugin=1 [Accessed 21 Nov. 2018].

[3] Reuters. (2018). Greek banks’ bad loan reduction in line with target. [online] Available at: https://www.reuters.com/article/us-greece-banks-loans/greek-banks-bad-loan-reduction-in-line-with-target-idUSKCN1LM26F [Accessed 21 Nov. 2018].

[4] Trading Economics. (2018). Greece GDP Growth Rate. [online] Available at: https://tradingeconomics.com/greece/gdp-growth [Accessed 22 Nov. 2018].

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