Prime Minister is keen to avoid a spike in bad loans.
(Photo: Dimitris Papamitsos Dimitris Papamitsos)
Athens The Athens Prime Minister Kyriakos Mitsotakis and his Finance Minister Christos Staikouras are taking the Greek bankers to court: They are supposed to offer debtors discounts on interest rates, relieve customers of fees and forgo bonuses. Behind this is the concern that rising interest rates could lead to a wave of new loan defaults.
The atmosphere was Christmassy when Prime Minister Mitsotakis addressed his monthly audience with President Katerina Sakellaropoulou last Friday. Advent pastries were on the table. But Mitsotakis didn’t grab it.
He got down to business quickly: “The banks have to meet their responsibilities,” said the prime minister with a serious expression in front of the television cameras. The institutes would have to support the poor private households, which they “are also able to do thanks to their high profitability in 2022”. The fact that Mitsotakis issued this warning in the presence of the President gives his words particular weight.
Bank managers know the problem. You know that many private borrowers face difficulties in servicing their mortgage loans. Smaller companies are also getting into trouble because of rising interest rates.
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A new wave of bad loans is the last thing bankers want. It has taken them many years to bring the non-performing loans ratio, which at the height of the sovereign debt crisis amounted to almost 50 percent of loans granted, to below 10 percent now.
Mitsotakis rules out state aid
Up until now, the hope was that the finance minister would help cash-strapped borrowers with subsidies. But Mitsotakis has now made it clear: There will be no state aid. The banks have to step in themselves. You could, for example, offer longer terms and installment breaks to debtors who are experiencing payment difficulties. It is also up for discussion that the banks will take on part of the rise in interest rates themselves, around half, for those who are unable to pay.
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According to estimates from financial circles, there is a need for action with around 20,000 to 30,000 loans at risk. But the topic is sensitive. Because if the banks grant debtors moratoriums or interest rate subsidies, they may have to make provisions according to the requirements of the Euro Banking Authority SSM. That weighs on the balance sheets.
The Greek institutes quickly passed on the interest rate hikes by the European Central Bank (ECB) to their customers. The average loan interest rose from 3.61 percent in August to 4.86 percent today. Greece thus has the third highest lending rates in the euro area after Lithuania and Latvia. Further increases are planned when the ECB raises the key interest rate again in mid-December.
When it comes to interest on deposits, on the other hand, the banks are exercising the greatest restraint. They rose from an average of 0.03 percent in August to just 0.05 percent now. This large – and constantly growing – spread is “unacceptable”, criticized Finance Minister Christos Staikouras on the TV channel “Skai” last Saturday. Staikouras criticized: “The banks are asking the Greek citizens to pay a lot, but they are not giving them back what is due to them.”
Several meetings between the minister and the heads of the four systemic banks in the past few weeks have been fruitless. Staikouras is now increasing the pressure and bringing another topic onto the agenda: the steep fees that Greek banks fleece their customers.
The minister published a list of 12 types of fees over the weekend, ranging from transfer charges, ATM withdrawal costs and foreign exchange commissions to bank statement fees and the cost of examining loan applications.
With fees, the four systemic banks earned 450 million euros in the third quarter alone. For transfers from bank to bank, the Greek institutes collect up to five euros. Transactions to banks outside the euro area can quickly cost over 100 euros for larger amounts.
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Finance Minister Staikouras no longer wants to accept this. He is now setting a deadline: At the next meeting with the minister in ten days, the CEOs of the banks should have revised their catalogs of fees.
Staikouras also made it clear that there will be no bonuses for Greek bank managers in 2022 either. In 2015, during the financial crisis, Greece passed a law capping bankers’ salaries. They are not allowed to earn more than the governor of the Greek central bank. That is nominally 400,000 euros per year. In 2012, however, the then head of the central bank, George Provopoulos, waived 50 percent of his salary during the financial crisis. The current central banker, Yannis Stournaras, is also sticking to that. The salary cap of 400,000 euros still applies to commercial banks.
The government is now not only worried about new loan defaults that could endanger Greece’s economic recovery after the Corona recession. When Prime Minister Mitsotakis increases the pressure on the banks, he also has the parliamentary elections due next spring in mind. Mitsotakis wants to prevent left-wing opposition leader Alexis Tsipras from occupying the banking issue in the early election campaign.
More: “Inflationary pressure will subside” – Central Bank Chairman Stournaras in an interview.