Daily Management Review

What Greek Banks Hide


03/21/2016


At first glance, the four largest banks in Greece are doing better than ever. In November, they received a third aid package for several years. The allocated € 14.4 billion ($ 15.9 billion) helped to increase the capital adequacy ratio to 18%, which is higher than the European average of 13%.



psyberartist
psyberartist
Recent legislative changes have facilitated the transfer of the security deposits to the ownership and selling loans to third parties. In addition, recent statistics show that the economy reduced last year by only 0.2%, which is less than expected.

According to the Bank of Greece’s forecast, this summer the country's economy can return to growth. After eight years of crisis and recession, finally normality seems very close.

However, the "safety cushion" of new capital still hides serious problems. Greek banks continue to lose money. This week, Piraeus Bank, the second largest lender of the country, reported a loss of € 1.9 billion in 2015.

To date, the payments for 40% of loans and 55% of mortgage loans are stopped (5% average in Europe). Large losses due to non-performing loans and debt once again eat the banks’ capital, writes the British magazine The Economist.

Moreover, Greece continues to argue with the other euro zone members, which threaten, in case of failure of negotiations, with a new crisis.

Perhaps the near future will require a fourth recapitalization, said Josu Fabo of rating agency Fitch. The market is nervous: bank stocks collapsed by 36% since the beginning of the year.

Although banks are largely "innocent bystanders" of the endless squabbles between the Greek government and its creditors, they are guilty of being too slow in the matter of "bad" debt. Instead of restructuring loans worth saving, defaulting bad debts, and then quickly sell the collaterall, they hope that the returning growth would help borrowers to meet their obligations.

However, this strategy prevents granting money to companies that can revive the economy. Recently, Head of the Central Bank of Greece Yannis Stournaras demanded "bold and innovative steps" to clear "bad" debts. "We cannot solve this problem by using the approach "everything will settle by itself", - he said.

In addition, banks could cut costs by closing branches and selling unprofitable assets, such as Turkish Finansbank, sub-company of National Bank of Greece.

In general, banks are not able to control their own destiny. Escalation of differences between the Greek authorities and lenders, the global economic slowdown and growing migration crisis in Europe may prolong and deepen the recession even in Greece.

Most real threat is Brussels and the IMF’s refusal to allocate the next tranche to the Greeks. As a result, the Government of Alexis Tsipras will not be able to pay most bills this summer.

Even if the crisis passes by, the Greek banks will not be able to issue a large number of new loans. In addition, liquidity remains quite acute problem, according to Miranda Jaffa of the Center for Innovation of International Board.

Greek banks have about € 202 billion of outstanding loans and around € 122 billion in deposits (down from € 237 billion in 2009).

Only in the first half of last year, depositors withdrew more than € 40 billion from their accounts. Emergency loans from the European and the Greek central banks make up the difference.

source: economist.com






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