Over the past five years, Greek banks have significantly improved their positions and financial performance, guided by the recovery of the Greek economy. They have finally turned the page, pointed out Gikas Hardouvelis, President of the Hellenic Banking Association (EET) and Chairman of the Board of Directors of the National Bank, speaking at the EET Annual General Meeting.
As Mr. Harduvelis mentioned, among others, non-performing loans have been significantly reduced. At the end of December 2023, they amounted to 9.9 billion euros, which is 6.6 percent of the total loan portfolio. This percentage is higher than the European average, which is currently around 1.8%. But the decline was spectacular. as the percentage of NPEs in September 2016 was 49.1%, and in absolute terms €106 billion, said the EET president. In fact, in 2023, Greek banks showed a decrease in non-performing loans at a time when the rest of Europe is seeing an increase. This huge decline has been achieved through organic and non-organic methods. The most important investment was the HERACLIS securitization program, which was based on state aid. In other words, in the provision of a price guarantee by the Greek state under the conditions of purchase and in the provision of the appropriate commission by the banks to the Greek state, he added.
The securitization program started in 2019 and is still ongoing. The guarantee was based on reliable business plans evaluated by international rating agencies. Today, banks want to increase the perimeter of “HERAKLIS” even more, so that all balances are cleared relatively quickly, Mr. Hardouvelis said.
The faster we get closer to the European average of 1.8%, the faster and bigger the upgrades to the banks by the rating agencies, as well as the resulting upgrades to the Greek state itself. As a result, the margins with which the state borrows and the entire economy decrease faster.
In the “HERAKLES” program, he noted that there is a virtuous circle between banks and the economy.
• The state increases the perimeter of HERACLES III and at the same time receives more income from the guarantee, but above all enjoys an economy with a more stable financial system and lower interest rates, which in turn leads to even greater growth.
• Stability and growth bring even higher revenues to the state while strengthening businesses, households and banks.
Speaking of improvements, two systemic banks already have an investment grade rating from two different rating agencies. The rest of the banks and even more houses are expected to follow soon. These evaluations show that we have turned a page in the eyes of international evaluators, Mr. Hardouvelis said.
The fact that we have turned the page can be seen from the clear balance sheet figures, said the EEC president, citing five facts.
I. First, the Common Equity Tier 1 ratio (CET1 ratio), closely monitored by the supervisor, SSM, was 15.5% on a consolidated basis in December 2023. The corresponding European average was about the same height, 15.7%.
II. Second, the liquidity ratios, which are also monitored by the supervisor, significantly exceed the minimum requirements. Finally, private deposits are on a continued growth trajectory beyond 2019. They have grown from 143 billion in 2019 to 194 billion euros today, that is, by about 50 billion euros. As of the end of 2023, the loan-to-deposit ratio was 67.2%, well below unity, indicating excess deposits and high liquidity.
III. Third, all banks have issued additional bonds and therefore have an additional cushion of depositor protection beyond capital I and II. These bonds have absolutely no direct benefit to the banks, because banks, having excess liquidity, do not need it, while bonds burden them with a disproportionate cost. In other words, they are compulsorily given only and only for precautionary reasons of control. Banks in Greece and across Europe are required by the supervisor to absorb these additional ongoing high and unnecessary costs, which are not easily visible to third parties, solely for the sake of the stability of the financial system and economy, i.e. the common good. We have also turned the page on these additional costs as the yield on these bonds has fallen from 8% in 2022 to below 5% today.
IV. Fourth, the results of pan-European stress tests conducted every two years by the ECB, particularly the SSM, are a reliable indicator of the stability of the banking system. In the last tests of 2023, 4 Greek systemic banks ranked 5th, 12th, 13th and 19th among 109 systemic banks, which makes our country the 4th best country in the EU-27 in terms of banking system stability and the first. In Southern Europe.
V. After years of cuts and restructuring bequeathed by the ten-year crisis, it has been two years since Greek banks stabilized and recorded strong positive profitability, while after-tax profits reached €3.6 billion.
As a percentage of equity, net profit was 12%, well above the European average.
So this year, after 16 years, Greek banks will once again distribute dividends to their shareholders, as all mature and healthy companies do. This act marks the complete return to normalcy of the domestic banking system.
The President of ETT also extensively addressed the issue raised by many analysts, journalists and investors, and it is a question whether this positive course of banks can continue in the future.
Mr. Harduvellis Answering this question at length, he said, among other things, that investors see a future decline in interest rates and, despite everything, continue to buy shares of Greek banks.
We see banks’ share prices rising and price-to-book ratios approaching their European counterparts. This investor interest contributed to the successful disinvestment of the Financial Stability Facility. I am reminded of the cases of National Bank, Eurobank and Alfa Bank last year, and Piraeus Bank this year. I also recall the entry of the non-systemic bank Optima to the stock exchange and the attempt to create a 5th banking pillar through the merger of Attica Bank with Pankritia Bank, which will be launched in 2024, he added.
Regarding the positive future of Greek banks, Mr. Hardouvelis said, among other things, that investors are optimistic because they see that they are transforming quickly and compared to what is happening in Europe. They see that they are investing in new technologies, digitizing. Banks are investing more than 400 million euros in their digital transformation, and these investments are increasing every year.
The explosive growth of electronic transactions of all kinds in Greece began in the era of capital controls and continues today, while the digital euro is expected to become a reality in a few years. By 2023, 90% of banking transactions will now be done online or through various apps, with 3.7 million monthly active users, Mr. Hardouvelis said.
Thus, the obvious answer to the question of where the profitability will come from in the future, when the central bank interest rates start to decrease, is from the growth of their operations, mainly from the loan portfolio. This growth is possible in an economy that continues to grow.
The net flow of bank credit to non-financial corporations was also positive in 2023, the seventh year in a row. New business loans outnumbered earlier loan repayments. And those loans were mainly directed to the industry, energy, trade, and tourism sectors. Even in retail banking, where net loans have yet to reverse their old negative trend, we saw a positive sign of 3.8% in consumer loans in 2023.
Of course, a big challenge for banks and the economy is the expansion of their credit portfolio for small and medium enterprises, Mr. Hardouvelis said.
Most businesses in Greece are small. Most of them, especially very small ones, are unable to present business plans and document their future profitability. Emphasis should be placed there both by the banks and the state. And the supervisors may need to loosen up a bit, because many times the banks want to lend, but the supervisors don’t allow it either directly or indirectly because of the excessive bureaucracy they impose, and which small businesses can’t afford, Mr. Hardouvelis said. .
Everything that has happened in recent years should give us a sense of security, because strong banks imply a strong economy, and conversely, a strong economy implies strong banks. In Greece, we have both, Mr. Hardouvelis said, and referred to the key role they play in the economy and actively support the National Recovery and Resilience Plan.
Banks support the economy in other ways as well, he said. For example, they are the first companies that started operating back in 2015 following the best corporate governance practices. Next, I recall that the Listed Companies Corporate Governance Act 2020 followed the corporate governance legal framework governing banks.
Banks are also leading the way in the green transition by helping businesses follow environmentally friendly policies, the EET president said.
Banks also stand by the Greek citizen, the borrower.
As the President of EET said, during the four-year period 2020-2024, Greek banks voluntarily, in consultation with their customers, arranged more than 37,000 private and business loans with a total loan amount of 2.4 billion euros. In several cases, they not only extended the repayment period, but also shortened it. This average haircut was 22%.
During the 4 years of using the extra-judicial mechanism, through the electronic platform owned by the state, it was possible to settle the bank credit contracts of 1.5 billion drams, which, as I mentioned above, are financed by the banks. on this day.
In addition, over the past two years, banks have created significant barriers to a significant increase in interest rates by the ECB. It was mentioned twice.
• First, they designed the BRIDGE III program to subsidize 50% of the rate increase for informed but vulnerable borrowers.
• Second, clearly on their own initiative, from March 2023, the banks have frozen the further increase of interest rates. Thus, 442,000 credit contracts were facilitated with a total amount of 19 billion euros, a benefit for citizens exceeding 250 million euros.
Most of the banks’ annual budget is allocated to social responsibility activities.
He also said that the offer of banks is large, but remains discreet. It is not highlighted enough as other agencies tend to do in today’s media age. In this direction, it is true, and we have decided to undertake communication initiatives that will highlight our important contribution to society, which remains relatively invisible and unknown.
The Greek banking union will complete 100 years of activity in 4 years. Its uninterrupted operation is due to the will of the members to join forces for the joint institutional treatment of issues of common interest, but also to strengthen their contribution to the Greek economy and society, Mr. Hardouvelis also said.