Several Greek banks have passed the latest stress test, according to official bank statements.
More specifically, Alpha Bank, Eurobank, Piraeus Bank and National Bank of Greece managed to exceed the minimum capital adequacy limits and avoid the unfavorable scenario. Nevertheless, there are other challenges that need to be addressed before Greece fully recovers from the economic crisis. Those challenges include the period following the memorandum and non-performing loans.
This conclusion is based on results generated by the meetings between the representatives of the banks with the European Central Bank (ECB) and the Single Supervisory Mechanism (SSM) last week. Full details about their meetings and the specific numbers are expected next week.
Passing the stress test is a step upwards not only for the banks but for Greece grown as well. It means that the banks of the country can be more trustworthy towards outside investors and banks. It also means that the scenarios that wanted the fail of Greek banks, compulsory mergers of banks and bail is based on taxpayers money are proved to be false.
The test of 2018 is the latest of the four tests for the banks since the Greek economic crisis started. The first recapitalization happened in 2013 when the systemic banks were supplied with 25 billion Euros from the Greek government and 3,5 billion Euros from private investors. The state also supplied non-systemic banks with 13,4 billion Euros through the Financial Stability Fund, to help them “solve their problems”.
In 2014 a new stress test took place followed by new capital increases equal to 8,3 billion Euros. Those increases were covered 100% by private investors in hope of Greece escaping the economic crisis. All hopes crushed in 2015 though when the new negotiations led to the third memorandum. A new stress test occurred along with new capital increases during historically low price levels, resulting in older shareholders losing the greatest part of their share.
Banks raised about 12 billion Euro from capital raises and state holdings by issuing Contingent Convertibles (CoCos). CoCos are similar to traditional convertible bonds in that there is a strike price, which is the cost of the stock when the bond converts into stock. What differs is that there is another threshold in addition to the strike price, which triggers the conversion when certain capital conditions are met. Issuing contingent bonds is more advantageous to companies than issuing regular convertibles. Instead of converting bonds to common shares based solely on stock price appreciation, investors in contingent convertibles agree to take equity in exchange for debt when the bank’s capital ratio falls below a certain point.
The success of the stress test of 2018 is a much needed positive sign that Greece is on its way exiting the economic crisis and entering the international markets with a new face. But the economic state in the country needs further improvement in order for banks to be able to solve the non-performing loans problem.
Non-performing loans, or as called in Greece “red loans”, represent the 60% of the open loans in delay for the banks. Those loans are practically business loans provided by the banks to small, medium and big businesses that had a great delay in their payments. Loans that have been delayed for a certain period of time (90 days), as well as loans that did not perform after their restructuring process are considered non-performing, meaning that the banks cannot rely on them for profits.
The total loans in all businesses sum up to 143 billion Euros, while 43,6% of them are considered non-performing. More specifically:
- Small, medium and big companies have a total of 110 billion Euros in loans with 40% considered non-performing.
- Freelancers and very small companies have a total of 25 billion Euros in loans with 66,5% considered non-performing.
- Maritime corporations have a total of 8 billion Euros in loans with 33% considered non-performing.
The banks will have to face this solid obstacle among others to create a permanent solution for the problem. Thankfully, the recent stress test indicates a healthy growth towards economic normalization.
Source: Η Καθημερινή.