The Greek head of the central bank is optimistic that the domestic banks will not feel any consequences of the SVB bankruptcy.
(Photo: Reuters)
Athens It was not until mid-2015 that the Greek financial system was on the verge of collapse. The turbulence in the European banking sector is now giving rise to new concerns that Greek institutions will once again have major problems. Greece’s central bank chief, Yannis Stournaras, does not see such a risk.
“Greek banks are more resilient than they were a few years ago and have more cushions to absorb the impact of a financial crisis,” Stournaras said the Handelsblatt. Banks have made “significant progress in cleaning up their balance sheets and have ample liquidity thanks to deposit growth and access to wholesale markets,” Stournaras said.
Greece’s central bank governor adds: “In addition, they returned to profitability in 2022 and improved their capital adequacy to levels above regulatory requirements.” The exposure is “nearly zero,” according to Stournaras. The institutes are also not involved in Credit Suisse’s equity-like Additional Tier 1 bonds (AT1).
In fact, the four systemic Greek financial houses have the turmoil of the crisis years 2010-2018 largely left behind. They pushed the non-performing loans ratio, which reached nearly 50 percent of originated loans in March 2016, to 8.7 percent at the end of December 2022. Deposits have grown 30 percent over the past four years.
Today, loans of 123 billion euros are offset by deposits of 201.2 billion euros. The inflows from the EU development fund RRF will further strengthen the liquidity of the banks and boost the lending business in the next few years.
It was not until mid-2019 that the Greek financial system was on the verge of collapse. This time, the risk of infection seems low.
(Photo: AP)
So far there are no signs of a bank run like the one experienced by Greece in early summer 2015 at the height of the euro crisis. At that time, the radical left Prime Minister Alexis Tsipras and his Finance Minister Yanis Varoufakis brought the Greek financial system to the brink of collapse with their confrontational course with international creditors.
Fearing a Grexit, Greece’s exit from the euro zone, people cleared their accounts at the time. Within six months, deposits fell from 160 to 136 billion euros. To prevent the banks from bleeding out, the government closed the institutions for three weeks at the end of June 2015 and introduced capital controls.
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In comparison, there is now composure in the boardrooms of the Greek financial institutions. The collapse of the Silicon Valley Bank (SVB) is a special case, they say. “The likelihood of something like this happening in Europe is extremely low,” Fokion Karavias, CEO of Eurobank, told the Greek newspaper Kathimerini. In contrast to the highly specialized SVB, the Greek banks with their diversified business models are much more stable, says the head of the Eurobank.
People are queuing in front of a bank and an ATM to withdraw money. The government then introduced capital controls.
(Photo: AP)
Finance Minister Christos Staikouras also sees the banks in good shape, but urges vigilance in the face of “global uncertainty and new challenges”: “The government is monitoring developments in close cooperation with the supervisory authorities and will do everything possible to ensure the stability of the Greek financial system. “
Greece: Structural deficits in the banking sector
However, as a result of the Greek sovereign debt crisis, the banking sector is still struggling with a structural problem. The write-offs of bad loans have eaten up a lot of equity in recent years.
With a core capital ratio (Tier 1) of 13.2 percent, the Greek banks meet the minimum requirements. But 63 percent of equity is accounted for by deferred tax credits from loss carryforwards. The state thus granted the banks compensation for the losses from the haircut in 2012.
In order to increase their equity ratio, the banks are now refraining from paying dividends despite billions in profits in 2022. In its latest Financial Stability Report, the Greek Central Bank describes the high share of tax credits in equity as a “challenge”.
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However, central bank chief Stournaras sees the banks on the right track when it comes to strengthening their capitalization: “In the future, the convergence of the asset quality to the EU average, the improvement in the quality and the capital supply as well as the sustainability of earnings due to business growth will be the fundamental data of the further strengthen Greek credit institutions,” predicts the governor of the central bank.
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