How have Greece’s banks been affected by the Troika’s stabilisation programmes and the European Central Bank’s higher capitalisation requirements? Dimosthenis Arhodidis, General Manager of Eurobank Ergasias, says that after a terrible 2015, Greece’s banks are recovering well and are hopeful for 2016.
World Finance: Years of fiscal derailment and chronic competitiveness problems have been at the heart of Greece’s financial crisis, which has seen two successive Troika IMF stabilisation programmes since May 2010. But how has this impacted the country’s banking sector? Here to discuss is Dimosthenis Arhodidis, of Eurobank.
Well Dimosthenis, the face of the banking sector in Greece has been plagued with crisis. So what’s the situation today?
Dimosthenis Arhodidis: The situation today is a lot more stable than it was a few months ago. Greek banks have been recapitalised – all four systemic banks. The last one to be recapitalised was the National Bank of Greece, and the recapitalisation exercise finished a few days ago.
However, we went through a terrible 2015. Supposedly 2015 was going to be the turnaround year. However, the negotiations of the leftist government that took power in January 2015 lasted for about six months. We ended up with capital controls which cost the economy quite a bit.
Also we ended up with another round of stress tests by the European Central Bank, which led to capital needs that banks needed to raise.
Fortunately, all four banks managed to raise the funds needed for the recapitalisation, so hopefully the future will be much better, with a banking system that is sound and totally recapitalised.
World Finance: Well you mentioned stress tests, and they happened in October. So what were the key findings to come out of these?
Dimosthenis Arhodidis: The stress tests actually started in August, and finished sometime in October. They key findings were that there were still capital needs for some of the banks. However the bank that I work for, Eurobank, ended up number one in terms of capital needs: meaning it had the least capital needs of all four banks. And we managed very easily to raise all the capital needed under the adverse scenario using private funds.
World Finance: So how resilient would you say the banking sector is, moving forwards? And where does Eurobank fit into this?
Dimosthenis Arhodidis: The banking system is definitely a lot more resilient. However, its resilience will be proven as we go through 2016 and 2017, hoping for an economy that will grow, instead of still being in recession.
The banking system needs to focus on bringing back deposits. One very important statistic is that about €45bn are kept in cash at homes: this is about 25 percent of the country’s GDP.
The resilience of the banking system will depend on how easy, or how quickly, these funds will come back into the banking system to improve its liquidity, because banks need to provide liquidity to the economy.
Also, the resilience of the banking system will be tested by the way banks will handle all their non-performing loans. As you can imagine, after six years of being in a recession, about 40 percent of the loans portfolio of the banks is non-performing. So banks need to handle this NPL portfolio, try to get the loans back, and stop building provisions, which hurt their profitability.
World Finance: Greek banks are now going through a period of recapitalisation. Talk me through this – how are you feeling the impact?
Dimosthenis Arhodidis: One of the things that the recapitalisation exercises do to banks is, banking employees stop doing their regular work and focus more on what the stress test results will be, and how the bank will be recapitalised.
So for the last two and a half months, we were focusing on that, instead of focusing on our actual job, which is to serve the clients, satisfy their needs, and create value for the clients and the bank.
As I said, this exercise is over now, so hopefully we will go back to our regular work, which is to serve the clients, create value for them, create value for the bank and its shareholders. And we’re ready to go back and support the Greek economy.
World Finance: And what are the remaining challenges for Greece’s financial sector moving forward?
Dimosthenis Arhodidis: The challenges are mostly political. We need to have a long period – I’m not sure how to define long period – but I would say we need to have at least a couple of years without elections. Elections create instability in any country, but more so in Greece right now.
nd we need the political system to move along with the reconstruction of the Greek economy, apply all the necessary changes needed, reduce bureaucracy, fight tax evasion, fight corruption, and give incentives for investments to come back to the country.
Either from Greek individuals and entrepreneurs who hold assets and capital abroad, and could bring it back to the country and make investments. Or attract foreign direct investment, which has been at very low percentages relative to GDP if you look throughout the last 10 years.
World Finance: And finally, how do you see the country’s economy developing: any green shoots?
Dimosthenis Arhodidis: There is a lot of potential for the Greek economy. Asset prices are very low. We are at a point where entry prices are very attractive for investors. Tourism is one sector that attracts a lot of attention from abroad. Also fish farming, energy; there are sectors where an investor could come in, buy very cheaply, make the necessary investments, and make money out of this.
We’re talking about internal rates of return, IRRs of at least 15 percent. So there’s a lot of potential for the Greek economy.
World Finance: Dimosthenis, thank you.
Dimosthenis Arhodidis: Thank you very much.
