debt crisis

Greek Banks Back in Black

A man walks by a National Bank branch in Athens, Greece, October 31, 2015.The European Central Bank is expected to say on Saturday that Greek's battered banks need up to 14 billion euros ($15.4 billion) in fresh capital in order to survive.REUTERS/Michalis Karagiannis
A man walks by a National Bank branch in Athens, Greece.
  • Why it matters

    Why it matters

    The improved outlook at Greece’s banks could lead to an easing of capital controls and better access to ECB cash.

  • Facts

    Facts

    • Analysts expect all four of Greece’s big banks to return to black this year.
    • Eurobank saw a first-quarter profit of €60 million; the National Bank of Greece saw a profit of €87 million; and Piraeus reduced its losses from €1.24 billion to €37 million.
    • Since the debt crisis erupted in 2010, Greece’s four largest banks have suffered €50.6 billion in losses.
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    Audio

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After five straight years of losses, Greece’s largest banks are finally showing signs of life.

Eurobank reported a net profit of €60 million in the first quarter of 2016 after suffering a loss of €175 million in the fourth quarter of last year.

The National Bank of Greece experienced an even bigger turn around, flipping a loss €889 million in the fourth quarter of 2015 into a net profit of €87 million in the first quarter of this year.

And Piraeus Bank came close to breaking even, having reduced a massive €1.24-billion loss in the fourth quarter of 2015 to just €37 million in the first quarter of this year. Michalis Sallas, the head of Piraeus, expects Greece’s largest bank to turn a profit of “several hundred million euros” this year.

“The highpoint of bad loans is clearly behind us.”

Michalis Sallas, CEO of Piraeus Bank

Alpha Bank, the smallest of the four big banks, will publish its first quarter results on Tuesday.

Analysts expect all four big banks to return to black this year so long as there aren’t any unforeseen political crises in Athens.

Eurobank, National Bank and Piraeus achieved their turnarounds in large part by reducing the amount reserves tied up as collateral for bad loans. They slashed their collective credit risks from €2.3 billion in the fourth quarter to €598 million in the first quarter of this year.

“The high point of bad loans is clearly behind us,” Mr. Sallas said.

Greece Heavy burden-01 debt level budget balance Greek finances

By 2018, Greece’s four largest banks want to slash their volume of bad credit from €110 billion to around €70 billion. They plan to achieve this through restructuring, write offs and selling bad loans.

The provisions in an agreement reached with Greece’s creditors on debt consolidation also increases pressure on the banks’ so-called “strategic” debtors who aren’t servicing their obligations even though they can. Strategic debtors account for a fifth of the banks’ bad loans.

Last week the Eurogroup of finance ministers agreed to release €10.3 billion in bailout funds to Greece. This once again averted a state bankruptcy and has given the banks room to breath.

“The agreement will stabilize the economy and improve the chance that Greece will put this crisis behind it,” Mr. Sallas of Piraeus said.

Athens plans to use €3.5 billion from the bailout tranche to balance its arrears with vendors and service providers, which will improve the banks’ liquidity.

More importantly, the agreement could make it easier for Greek banks to get cash from the European Central Bank. In early 2015, the ECB stopped accepting Greek bonds as collateral. It could decide as early as this Thursday to reverse that decision.

Right now, Greek banks can only receive emergency liquidity assistance from the ECB, which has an interest rate of 1.55 percent. If the ECB starts accepting Greek bonds again, Greece’s banks will be able to access the central bank’s cash at the much lower normal rate of 0.15 percent.

Louka Katseli, president of the Hellenic Bank Association, hopes the positive outlook will also lead to an easing of the capital controls introduced in July of 2015 when Greece nearly went bankrupt.

For the banks, the capital controls are a double-edged sword. On the one hand, they have prevented capital flight. But they are also hindering the return of deposits that were withdrawn during the debt crisis.

Greek bank deposits have declined by almost half since 2010 from €237 billion to €121 billion.

 

Gerd Höhler is Handelsblatt’s Athens correspondent. To contact him: hoehler@handelsblatt.com.

 

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