Greece’s big banks have been in crisis mode for a decade, starting with the global meltdown in 2007 and then the Greek debt drama, but are now on the way to completing the restructuring programs they agreed with the EU by the end of 2018.
Their biggest challenge is cleaning up their books because around half of their loans are bad, but here too, they’re making progress.
In 2015, the government resorted to shutting the banks for three weeks and introducing capital controls during cliffhanger bailout talks that had prompted massive withdrawals from Greek bank deposits.
Two years on, capital controls are still in force, “but we’re finally back on the road to normality,” Christos Megalou, the head of Piraeus Bank, Greece’s largest, told Handelsblatt.
Under the restructuring agenda agreed with the European Commission, the EU’s executive arm, the country’s four systemic banks, which account for 90 percent of the market share, must sell shareholdings and shut down all operations not linked to banking to help them repay the state aid they receive.
National Bank of Greece, Eurobank Ergasias and Alpha Bank are making good progress and have already met 85 percent of their requirements, but Piraeus is lagging behind due in part to internal management disputes.
“We’re finally back on the road to normality”
Mr. Megalou, who previously worked at Barclays, Credit Suisse and as head of Greece’s Eurobank, became CEO of Piraeus in March. He’s the bank’s third boss in just two years, and he’s in a hurry to turn it around, via his “Agenda 2020.” It has four top priorities: “We want to reduce non-performing debt, cut costs, strengthen our capital base and become independent of emergency liquidity assistance (ELA) from the central bank,” he told Handelsblatt in an interview.
All four banks are scaling down their ELA, which amounted to a total of €40.7 billion ($48.1 billion) at the end of May, down from €43.6 billion at the start of the year. The decline is being helped by rising deposits which in June reached €120.4 billion, the highest level so far this year. “We want to reduce our ELA dependence from 10 billion now to zero by the end of 2018,” said Mr. Megalou. “Every billion of ELA costs as much as 10 million euros.”
The banks are also slashing costs. They reduced their combined branch network to 2,200 by the end of 2016 from 3,900 in 2009, and a further 180 branches are due to be shut this year. The workforce fell to 41,100 from 63,000 in the same period. Crucially, three of the country’s four systemic banks returned to profit, albeit modest, in 2016 after six years in the red. Only Piraeus reported a small loss of €4 million.
The Greek central bank said in its latest report on the banking sector that the disbursement of the third tranche of bailout funds under the country’s current €86-billion bailout program had “removed uncertainties.” Rating agency Moody’s raised its rating for Greek banks from Caa3 to Caa2 at the end of June. It increased its outlook for Alpha Bank and National Bank of Greece to “positive” from “stable,” which points to another ratings upgrade in the future. According to industry estimates, the Greek banks will post profits totaling €900 million in 2017 and €1.5 billion in 2018.
And it’s not just the banks that are doing better, but the Greek economy as a whole. Last week, Athens returned to the international bond markets for the first time in three years, selling €3 billion of debt as investors responded enthusiastically to the country’s improved financial outlook. The sale of the five-year bonds came in at 4.625 percent, an unusually low rate given that the country was on the verge of bankruptcy only a few years ago. German Finance Minister Wolfgang Schäuble, who has for years locked horns with Athens over its austerity program, praised the bond sale as “the result of long-term reforms.”
But Greece’s top banks are not quite out of trouble yet. Their huge credit risks remain their biggest problem. The Greek central bank said 44.8 percent of bank lending was non-performing or at risk of default. The European Central Bank wants the banks to reduce that percentage to 34 percent by the end of 2019, and after much delay, the legal framework is finally in place for banks to consolidate their lending. They’re starting to clear up their books in earnest.
The banks wrote off €2.6 billion in bad debt in 2016 and a further €1.8 billion in the first five months of this year. “We want to reduce the total of our problem loans from €33.3 billion in March 2017 to €20.3 billion by the end of 2019 and to well under €20 billion by December 2020,” said Mr. Megalou of Piraeus.
The banks have also shed most of their foreign shareholdings. National Bank of Greece, or NBG, sold its profitable Turkish subsidiary Finansbank and also pulled out of Serbia, Albania, Romania and Cyprus. In June, it sold 75 percent of its insurance business to a Dutch investor for €718 million. NBG’s chief executive Leonidas Fragiadakis said Greece’s second-largest bank did so to fulfil European requirements.
Eurobank has also withdrawn from Romania but is keeping its operations in Bulgaria, Cyprus, Serbia and Luxembourg. Piraeus has given up its entire foreign business. “We’re concentrating on our core business in Greece to profit from growth prospects here,” said Mr. Megalou. “The Greek economy could develop better than we initially expected.”
He added the real-estate market was looking promising and that recent successful privatization deals were a positive sign. China’s Cosco bought the port of Piraeus, Frankfurt airport manager Fraport has invested in regional Greek airports and Greek rail operator Trainose was sold to the Italian state railway.
Gerd Höhler is Handelsblatt’s correspondent in Athens, Greece. To contact the author: email@example.com