Unorthodox Finance

After Deep Cuts, Greek Banks Back In Black

Back in black in Greece. Source: Reuters
Back in black in Greece.
  • Why it matters

    Why it matters

    Upcoming euro-zone bank “stress tests” will be a challenge for National Bank of Greece, Alpha Bank, Piraeus Bank and Eurobank, all “system-relevant” in Greece.

  • Facts

    Facts

    • National Bank of Greece had the lowest quota of non-performing loans among Greek banks.
    • With the debt haircut in February 2012, Greek banks lost almost €38 billion.
    • Since 2010, Greek banks have cut almost 12,000 jobs, one fifth of the total before the financial crisis.
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    Audio

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After a long dry spell, three of Greece’s biggest banks have posted profits in the first half of 2014. Admittedly, the return to black is partly due to special taxation affects, but also to drastic cost-cutting. Yet the belt-tightening must continue, as Greek banks face new stress tests by the European Central Bank.

The industry leader National Bank of Greece is in the best shape, with profits of €1.146 billion, or about $1.48 billion, for the first half-year.

The bank also had the lowest quota of non-performing loans: 23.2 percent, compared to the industry average of 34 percent. The head of NGB, Alexandros Tourkolias, is the only top Greek banker to have the luxury of calmly awaiting the stress test results. With a level 1 core capital quota of 16.2 percent in the second quarter, Mr. Tourkolias said his bank is on the safe side and won’t require additional capital.

For the first half of this year, Alpha Bank had an after-tax profit of €361.6 million, and Piraeus Bank earned €202 million. Only Eurobank has not yet returned to profit and posted losses of €301 million.

After Greece’s debt haircut in February 2012 as part of the euro zone bailout, Greek banks lost almost €38 billion, or about $49.2 billion – far more than their owned capital of €22.1 billion. Of 19 Greek banks in business then, only nine remain. The others were liquidated or taken over. Today the four “system-relevant banks” – those whose collapse would threaten Europe’s financial landscape – hold 98 percent of deposits in Greece.

Last year, the four large institutions were recapitalized with €27.5 billion in the second Greek rescue package. With capital increases this spring, the banks took in €8.3 billion more on the markets. Still, experts predict that new stress tests could indicate more capital is needed at Eurobank, Alpha Bank and Piräus Bank. Anastasia Sakellariou, head of the Hellenic Financial Stability Fund, is not worried. “If there proves to be a need for additional capital, I believe it will be readily available,” she said.

Even if more than €11 billion is still available from the aid package provided by the European Union, the banks hope to avoid accepting any more state assistance. For that reason, they want to reduce costs further and sell assets.

It is no longer out of the question for Greek banks to consider retreating from markets in eastern Europe, which they sought to conquer in the 1990s and 2000s.

Since 2010, Greek banks have eliminated almost 12,000 jobs, one-fifth of the total before the financial crisis. The network of branch offices shrank from 3,733 to 2,882.

National Bank of Greece reduced its operating costs in the first half of this year by a sizable 16 percent, Eurobank by almost 11 percent, and Alpha Bank by a little less than 9 percent. Piraeus Bank has the greatest need to consolidate. Over the course of the crisis, it swallowed up six smaller institutions and now intends to reduce branch offices from 1,354 in March 2013 to 860 by the end of this year.

The banks also have insurance subsidiaries as well as real estate to be sold.

It is no longer out of the question for Greek banks to consider retreating from markets in eastern Europe, which they sought to conquer in the 1990s and 2000s. Eurobank is selling its subsidiary in Ukraine and has already pulled out of Poland and Turkey. Alpha Bank intends to concentrate only on Romania and Cyprus in the future, and to sell other foreign businesses.

Piraeus Bank – with about 400 branches in seven countries, the biggest foreign presence of Greek banks – also plans to consolidate its holdings. National Bank of Greece intends to reduce its presence in the Balkan countries. But Greece’s largest bank wants to hold onto the Turkish Finansbank. That’s the bank’s most profitable subsidiary and, even in the crisis years, was able to send profits back to Athens.

This article was translated by George Frederick Takis. Greg Ring also contributed. To contact the author: hoehler@handelsblatt.com

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