The Greek banking system during the Greek debt crisis
Christos Vl. Gortsos
Associate Professor of International Economic Law, Panteion University of
Athens
Secretary General, Hellenic Bank Association
September 2011
1
TABLE OF CONTENTS
I.
II.
III.
IV.
V.
VI.
The Greek banking system – An overview
The effect of the global financial crisis on the Greek banking system
The impact of the Greek fiscal crisis to the banking system
Institutional, supervisory and regulatory measures for the enhancement
of the Greek banking system
The new support programme for Greece with respect to the adjustment
programme
Conclusions
2
I. The Greek banking system – An overview
The Greek banking sector
•
60 banks with 4,200 branches
•
64,000 employees
Four main categories of banks operating in Greece:
•
18 commercial banks established in Greece
•
16 cooperative banks established in Greece
•
22 branches of banks established in another Member State of the EU
•
4 branches of banks established in third countries (outside the EU)
HBA members
•
25 commercial banks (93% market share)
•
•
•
•
15 commercial banks established in Greece
9 branches of banks established in another Member State of the EU
1 branch of a bank established in a third country (outside the EU)
440 billion € in assets (as of 30.6.2011)
3
I. The Greek banking system – An overview
Greek banks
•
manage an equivalent of 113% of the Greek GDP (loans to
households and businesses),
•
hold an equivalent of 106% of the Greek GDP in deposits and repos,
•
lend 115,6 billion € for housing purchase and consumer credit, an
equivalent of 10,246 € per inhabitant,
•
with an aggregate balance sheet at 210% of GDP, the size of the Greek
banking system is not excessive compared to other countries,
•
the average loan-to-deposit ratio was 135% at the first semester of 2011
(2008 - 2009: 114%) mainly due to the shrinking deposits
4
I.
The Greek banking system – An overview
Composition of bank loans (end-May 2011)
 Consumer credit: 14%
 Corporate loans: 54%
 Mortgage loans: 32%
5
II. The effect of the global financial crisis
on the Greek banking system (2007-2009)
1.
2.
3.
4.
Greek banks were not exposed to risks that triggered the causes of the
recent global financial crisis
Thus, the spillover effects from the global financial crisis on the Greek
banking system were limited. Accordingly, there was no need to activate a
bank rescue program
The recovery program adopted by the Greek government (the 28 bn euro
“package”) in late 2008 was mainly aimed at the enhancement of liquidity
conditions in the system
Moreover, the level of deposit guarantee was raised to 100,000 euros
(from 20,000) per depositor immediately after the bankruptcy of Lehman
Brothers in order to enhance depositor confidence in the system
(successfully)
6
II. The effect of the global financial crisis
on the Greek banking system (2007-2009)
However, during the global financial crisis liquidity conditions were strained
•
Greek banks had limited access to wholesale markets to fund their lending
activity
•
Maturing inter-bank liabilities put additional pressure on their liquidity
position
7
II. The effect of the global financial crisis
on the Greek banking system (2007-2009)
Despite the problems, Greek banks have shown remarkable resilience and
were able to overcome the difficult days due, inter alia, to a number of
factors:
1. They had a strong capital base and steadily increased their provisions (more
than 40% Year on Year)
2. They were facilitated by measures taken by the European Central Bank and
the Greek government
3. The effective prudential supervision by the Bank of Greece ensured the
stability of the Greek banking system
During the global financial crisis, the Greek banking system remained
healthy, adequately capitalized, and highly profitable
8
III. The impact of the Greek fiscal crisis to the banking system
The Greek banking system was negatively affected mainly by the Greek debt crisis.
Greek banks are facing the following main challenges:
1. The liquidity situation of banks remains tight:
• Bank deposits declined by 18,2% since the beginning of 2010 (and 19,8% since the
beginning of 2009)
• Extremely limited access to the inter-bank money and debt capital markets
• Reliance on Eurosystem credit. Borrowing from the ECB represents, currently,
nearly 22% of banks' liabilities (July 2011: 96,3 billion €, December 2010: 97,7 billion
€)
• In July 2011 interest rates for new deposits from households with agreed maturity
up to 1 year were the highest (4,28%) among the Eurozone
• In July 2011 interest rates for new deposits from non-financial corporations with
agreed maturity up to 1 year were the highest (3,82%) among the Eurozone
9
III. The impact of the Greek fiscal crisis to the banking system
Lending to euro area Credit Institutions related to monetary policy
operations denominated in euro
120.000.000.000
100.000.000.000
Main refinancing operations
80.000.000.000
Longer-term refinancing
operations
Fine-tuning reverse operations
60.000.000.000
Total
40.000.000.000
20.000.000.000
0
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11
Source: Bank of Greece
10
III. The impact of the Greek fiscal crisis to the banking system
2. Improving Capital Adequacy:
• The average CAR at the end of December 2010: 12,2%
• The average Tier I ratio at the end of December 2010: 10,9%
• The average Core Tier I ratio at the end of June 2011 after PSI impact : 9,3%
Banks
December
2009
Capital Adequacy Ratio
(CAR)
Tier 1 Ratio
Banking groups
December
2010
December
2009
December
2010
13,2%
13,8%
11,7%
12,2%
12%
12,2%
10,6%
10,9%
Source: Bank of Greece, Annual Report 2010
11
III. The impact of the Greek fiscal crisis to the banking system
3. M&As and other measures for the Capital Adequacy improvement :
• In August 29 the Boards of Directors of Alpha Bank and Eurobank EFG announced
that they have reached agreement on a combination of Alpha Bank and Eurobank EFG by
way of a merger. The new group will be among the top 25 largest Eurozone banking
groups with pro forma total assets of €146 billion (as at H1 2011, excluding Poland)
• Certain banks carried out successful capital increases on the market: NBG (€1,8
billion), PIRAEUS Bank (€0,8 billion),
• In April 2011, Agricultural Bank of Greece (ATE) announced a share capital increase of
€1,26 billion. The European Commission has approved under EU State aid rules the
restructuring plan of Agricultural Bank of Greece which involves a State recapitalisation of
the bank of up to € 1.144.5 million as well as liquidity measures
• Sales of subsidiaries: sale by NBG of a minority stake in Finansbank (Turkey) Eurobank EFG sale of a majority stake in Polbank (Poland) – Piraeus Bank sale of its
subsidiary Piraeus Bank Egypt (former Egyptian Commercial Bank)
12
III. The impact of the Greek fiscal crisis to the banking system
4. Non-performing loans
 NPLs increased to 10,4% in December 2010 (from 7,7% at the end of
2009)
 74% or 18,7 bn. € (December 2009: 75,5% or 14,9 bn. €) of the NPLs
are secured loans (loans to non-financial corporations and mortgage
loans)
5. Greek government 10-year bonds spreads vis-à-vis German Bonds (bp)
Source: Bank of Greece
13
III. The impact of the Greek fiscal crisis to the banking system
6. Consolidated foreign claims of reporting banks - immediate borrower basis on
individual countries by nationality of reporting banks / Amounts outstanding (as of
end-March 2011)
Month (end of)
Year
Amount
(mil USD)
%
(annual basis)
European Banks
Other NON European Banks
March
2011
161795
-27,7%
142468
19327
December
2010
160892
-31,9%
130091
30081
September
2010
184069
-39,2%
153553
30516
June
2010
175418
141.564
33854
March
2010
223735
177649
46086
December
2009
236211
188780
47431
September
2009
302566
252813
49753
Source: BIS Quarterly Review, September 2011
14
III. The impact of the Greek fiscal crisis to the banking system
6. Consolidated foreign claims of reporting banks - immediate borrower basis on
individual countries by nationality of reporting banks / Amounts outstanding (as of
end-March 2011)
Ranking
nationality of reporting banks
Million USD
1
France
52904
2
Germany
35704
3
United Kingdom
13679
4
Portugal
10158
5
United States
8787
Sub-Total
121232
Total
161795
Sub-Total / Total
74,93%
Source: BIS Quarterly Review, September 2011
15
III. The impact of the Greek fiscal crisis to the banking system
7. Bank credit to the domestic private sector is marginally negative …
DEC. 2009
ENTERPRISES
SOLE PROPRIETORS
5,1%
n.a.
DEC.2010
JULY.2011
1,1%
0,2%
0,3%
-4%
NDIVIDUALS & PRIVATE NON-PROFIT INSTITUTIONS
3,1%
-1,3%
-2,7%
TOTAL
4,1%
0%
-1,2%
Source: Bank of Greece, Bank credit to domestic enterprises and households, monthly press releases
16
III. The impact of the Greek fiscal crisis to the banking system
7. … and the corresponding trend in US, Eurozone and UK
Source: IMF, Global Financial Stability Report, January 2010
17
III. The impact of the Greek fiscal crisis to the banking system
8. Pre tax PSI impact
According to the 2nd quarter 2011 results the pre tax PSI impact for nine
(9) Greek banks and two (2) branches of banks established in another
Member State of the EU (88% market share) are estimated to 6,4
billion €
18
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
1. Supervisory measures
1.1 Stress tests
According to the results of the EU-wide stress-testing exercise -which was
conducted in 2010 by the predecessor of the European Banking Authority (the
Committee of European Banking Supervisors) and national supervisory
authorities, in close cooperation with the European Central Bank - in order to
assess the overall resilience of the EU’s banking sector to major economic and
financial shocks, for the Greek six (6) banks, as a whole, which participated, the
results indicate:
• a net surplus of Tier 1 capital of the order of € 3.3 billion above the 6% ratio
of Tier 1 capital that was agreed as a benchmark solely for the purpose of the
stress test (the baseline scenario)
19
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
1. Supervisory measures
1.1 Stress tests
The EU-wide stress-testing exercise of 2011, conducted under the coordination
of the European Banking Authority, in cooperation with national supervisory
authorities, the European Central Bank, the European Commission and the
European Systemic Risk Board, for the six (6) largest Greek banking groups
(representing over 90% of the total assets of the Greek banking system),
considered as a whole, resulted in the following:
• a capital surplus of € 2,44 billion above the amount that corresponds to the
Core Tier 1 capital ratio threshold of 5%. Under the adverse scenario, before
taking into consideration additional mitigating measures, four out of six Greek
banking groups came in above the 5% threshold, one came in marginally below
the 5% threshold and another one came in significantly below the 5% threshold.
20
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
1. Supervisory measures
1.1 Stress tests
With regard to the threshold and the capital ratio 2 key features distinguish 2011
exercise from that performed in 2010.
• first, the threshold was set up 5% in 2011 compared with 6% in 2010,
• second, the definition of capital used for 2011 exercise was a Core Tier 1
capital ratio, compared with a Tier 1 capital ratio used in last year’s exercise
21
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
1. Supervisory measures
1.2 Other supervisory measures
Based on the timetable for the implementation of the “Memorandum of
Economic and Financial Policy” and to facilitate the access of the Greek banks
to the international money markets, the Bank of Greece required Greek banks:
• to develop and implement medium-term funding plans, and
• to maintain a minimum Core Tier 1 capital ratio of 10% (from the beginning of
2012).
Additionally, the Bank of Greece proceeded with a diagnostic study of the loan
portfolios of the Greek banks. The study will be completed by the end of 2011.
22
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
2. Institutional measures
2.1 Hellenic Financial Stability Fund (Law 3864/2010)
• The Financial Stability Fund (hereinafter “the Fund”), established in 2010, is a
legal person governed by private-law.
• The Fund shall have full legal capacity and locus standi, it shall not belong to
the public sector and shall enjoy administrative and financial independence, shall
operate purely in accordance with private economic activity standards and shall
be governed by the provisions of Law 3864/2010. The purely private-sector
character of the Fund shall not be prejudiced by the fact that its capital shall be
paid up in full by the Greek State or by the issuance of the relevant decisions of
the Minister of Finance.
23
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
2. Institutional measures
2.1 Hellenic Financial Stability Fund
• The purpose of the Fund shall be to safeguard the stability of the Greek
banking system by strengthening the capital adequacy of banks, including
subsidiaries having their registered office abroad, legally operating in Greece, in
case a bank faces problems of capital adequacy as specified in the Law
3864/2010.
• In fulfilling this purpose, the Fund shall manage its capital and assets in general
and shall exercise the rights deriving from its capacity as shareholder in such
way as to preserve the value of such assets, to minimize risks to Greek taxpayers
and not to hamper or distort competition in the banking sector.
24
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
2. Institutional measures
2.1 Hellenic Financial Stability Fund
The Fund is operating, its Board of Directors has been elected and by-end June
2011 it is fully operating. Its capital is foreseen to be 10 bn euros originating
from the support mechanism of the Greek economy by euro area Member States,
the European Central Bank and the International Monetary Fund
25
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
2. Institutional measures
2.2 Council of Systemic Stability (Law 3867/2010, article 20)
• It was established by the Ministry of Finance
• Its purpose is the analysis of the dynamics between the various sectors of the
financial system and their constant monitoring in order to address proactively
situations of stress and crises
• It consists of seven (7) members (including the Minister of Finance, the Deputy
Minster of Finance, the Governor of the Bank of Greece, the Sub-Governor
responsible for these issues of the Bank of Greece, the President of the Hellenic
Capital Markets Commission and two (2) persons with specific knowledge of the
financial sector determined by the Minister of Finance)
26
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
3. Regulatory measures
3.1 Issuance of additional government guarantees to be used as collateral in
order to obtain funding form the European Central Bank (15, 25 & 30
billion euros respectively) (laws 3845/2010, 3872/2010 and 3965/2011).
Said packages, based on the recovery program of 28 bn, adopted by the
Greek government in late 2008 in order to enhance the liquidity of the
Greek banking system, were authorised by the European Commission under
State aid control rules
3.2 As already mentioned, the level of deposit guarantee was raised to
100,000 euros (from 20,000) (Law 3714/2008), per depositor, immediately
after the bankruptcy of Lehman Brothers in order to enhance depositor
confidence in the system (successfully)
27
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
3. Regulatory measures
3.3 Draft Bill on recovery and resolution measures
Said draft bill, which will be voted this week, contains, inter alia, provisions on:
• the strengthening of the supervisory powers and measures which may be
taken by the Bank of Greece in case banks do not or there are strong
indications that they do not comply with the basic banking law and the
relevant decisions of the Bank of Greece (under a),
• the conditions under which a Commissioner has to be or may be appointed
by the Bank of Greece to a bank and its powers (under b),
• resolution measures which may be taken by the Bank of Greece (under c),
and
• the creation of a Resolution Fund (under d)
28
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
3.3 Draft Bill on recovery and resolution measures
(a) Supervisory measures
The Bank of Greece shall require any bank that does not meet, or if there
exist strong indications that it does not meet- the requirements of the basic
banking law, inter alia:
• to hold own funds in excess of the minimum level laid down in its
generally applicable decisions on capital adequacy,
• to increase its capital,
• to perform recovery or resolution plans,
• the pre-approval by the Bank of Greece of transactions which may be to
the detriment of the solvency of the bank
29
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
3.3 Draft Bill on recovery and resolution measures
(b) Commissioner
•
•
•
•
The draft bill distinguishes between conditions under which a
Commissioner to a bank has to be or may be appointed by the Bank of
Greece.
Its powers are significantly strengthened and she/he may exercise (or
collaborate to) the management of the bank.
The Commissioner shall be subject to control and supervision by the Bank
of Greece.
She/He is appointed for a period not exceeding 12 months. However, its
appointment may be extended up to 6 months.
30
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
3.3 Draft Bill on recovery and resolution measures
(c) Resolution measures
The relevant provisions of the draft bill, which are novum, determine the
resolution measures, which may be taken by the Bank of Greece in the sake
of the protection of financial stability and the enhancement of public
confidence to the system. The draft bill provides for the conditions under
which these measures are activated, such as the impossibility of taking
alternative measures of equivalent effect. The resolution measures include:
• the increase of capital,
• the transfer of assets of a bank to another bank, and
• the creation of a “bridge bank” by decision of the Minister of Finance
under recommendation of the Bank if Greece, to which all or part of the
assets of the initial bank are transferred. Its duration will not exceed a
period of three (3) years
31
IV. Institutional, supervisory and regulatory measures
for the enhancement of the Greek banking system
3.3 Draft Bill on recovery and resolution measures
(d) Resolution Fund
According to the relevant provisions of the draft bill, which are also novum,
a Resolution Scheme will be created to the existing Hellenic Deposit
Guarantee and Investors Compensation Scheme.
• The Resolution Scheme, which will be independent from the Deposit
Guarantee Scheme as well as the Investor Compensation Scheme shall
provide funding: either in case of transfer of assets of a bank to another
bank or in the case of the creation of a “bridge bank”.
• The participation of Greek banks in the Resolution Scheme is
mandatory as well as the payment of contributions to it
32
V. The new support programme for Greece with respect to
the adjustment programme
The July 2011 support programme for Greece (after the pact for the Euro), which
has been endorsed in order to establish a stronger economic policy coordination for
competitiveness and convergence provides - in view of the commitments undertaken
by Greece - the following in relation to the adjustment programme of Greece :
1.
2.
3.
4.
5.
the total official financing will amount to an estimated 109 billion euro. For the period
2011-2019, the total net contribution of the private sector involvement (PSI) is
estimated at 106 billion euro
the interest rate on its loans will be close to, without going below, the EFSF funding
cost (currently approx. 3.5%)
lengthen the maturity of future EFSF loans to Greece to the maximum extent possible
from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace
period of 10 years
Task Force creation which will work with the Greek authorities to target the structural
funds on competitiveness and growth, job creation and training
adequate resources provisions (20 bn) to recapitalise Greek banks if needed
33
VI. Conclusions
Under current conditions, the challenge for the Greek banking system has
mainly three aspects:
1.
To maintain the stability, with adequate capital adequacy ratios and adequate
liquidity
2.
To assist enterprises and households to accommodate with the inconveniences
caused by the recent economic downturn
3.
On the medium term, to comply smoothly with the regulatory storm
underway (Basel III, Review of the Deposit Guarantee Schemes Directive, banking
resolution, taxation of the financial sector, SIFIs)
34