Having returned to profitability in 2016, Greek banks are now focused on tackling non-performing loans in an effort to abet the continued pace of recovery. Nikolaos Karamouzis, Chairman of the Hellenic Bank Association, explains how the crisis has forced the banking system to become stronger.
Do you believe the “electroshock” applied to Greece’s economy was justified?
Greece was in need of a shock. By 2009, we had such huge macroeconomic imbalances that it would have been impossible to find a painless way out. Be that as it may, the country now seems to be moving in the right direction. Recently, we accessed international markets with a 5-year sovereign issuance for the first time in more than three years. Following the signing of the third adjustment program, the Greek government has now demonstrated a new level of commitment, successfully going through two reviews.
What indicators show that the Greek turnaround has arrived?
We expect 2017 GDP growth to be around 1.7%, showing a clear trend to recovery. Furthermore, unemployment is going down, fiscal targets are being met, banks’ corporate governance has been modernized, and privatizations are on track. That paints a positive picture that has yet to be fully appreciated by the markets, mainly due to the country’s damaged credibility.
How were Greek banks affected by the crisis?
Greek banks were not the cause of the crisis, but rather its victims. They entered the crisis adequately capitalized, with high liquidity and proper access to the money and capital markets, while their non-performing portfolios were among the lowest in Eurozone. However, the crisis led to a closure to international markets and the subsequent increase of Eurosystem reliance, which reached more than €130 billion at the peak of the crisis, and to an explosion of NPEs, valued at more than €100 billion, or about 50% of all portfolios, according to latest data. This ultimately took a toll on the banks’ profitability and capital position, requiring a series of recapitalizations reaching €64 billion in total, and a consolidation of the sector that resulted in the allocation of four “significant” banks from over 30 banks before the crisis.
How would you rate the health of the banking sector today?
At this point in time the worse seems to be behind us. Without having exited the crisis conclusively, and with the economy still struggling to show positive growth rates, the deposit situation has more or less stabilized, and dependency on the Eurosystem has almost halved from peak levels. Furthermore, Greek banks have put in place a comprehensive plan, agreed with the regulator to bring down their NPE levels by 38% (or c. €40 billion) by 2019 from first-half 2016 levels, the year when banks returned to profitability after 8 years of hefty consecutive losses.
Have banks become healthy enough to support future growth?
Greek banks are the most scrutinized banks in Europe. The net result of previous recapitalization rounds is that the Greek banking system currently has a CET1 ratio of 17%, among the highest in Europe, €55 billion of accumulated provisions, strong pre-provision income close to €4 billion annually and a comprehensive plan in place of bring down the NPLs based on nine distinct targets that are regularly monitored by the regulatory authorities. Apart from NPLs, all four Greek significant banks have restructuring plans underway that mostly rotate around divesting from non-core assets and international subsidiaries and boosting liquidity and capital ratios to support domestic activities. I believe that the banks have responded to the crisis in a constructive manner, have taken their share of the burden and they stand ready to play their part in the Greek recovery.