On July 11 the Governor of
the Bank of Greece appeared before a committee of the Hellenic Parliament to
account for the Bank of Greece’s report on the state of the Greek Economy and
monetary policy. On the issue of the public debt, he confirmed that a budget
surplus of approximately 2% in conjunction with future growth, are both
criteria for a debt restructuring. He continues to be an
advocate of privatizations and restructuring in the Greek economy, and that if
they are followed steadily, will bring about a lower economic austerity.
He was questioned on the new corporate
governance by the Greek banks and the “anti – Greek” in the new management taking
place. He expressed his opposition and said that the Greek banks will remain
under Greek management, bust stressed that new people are needed in the board
and in CEO’s. He also cited the new head of JP Morgan, who is Greek, and said
that just because there is CEO of Greek descent, the bank has not lost its
identity.
In the events that transpired
during the first six months of 2015, and the possibility of a Grexit, the
Governor said that the cost to the Greek economy was estimated at 86 billion
euros. That coupled with the need to recapitalize the Greek banks, the exodus
of capital – deposits from Greek banks. The EU estimated the cost of
recapitalization at 25 billion euros, a high cost due to high risk. However,
the cost was at 25 billion, of which only 5 billion was used for
recapitalization. The difference will bring cost benefit, said the Governor, together
with the debt sustainability.
On the primary surplus, the
fiscal policy and the positive trend of the public revenue in the first five
months of 2016 will exceed target of 0.5% of GDP. Due to lower interest rates,
the present value of the public debt is -51%, and the interest and repayments
of the debt (amortization) is less than 15% of GDP.
With regards to the return of
deposits to the Greek banking system, the Governor’s data is that 2 billion
euros have returned in the period from June to December 2015, especially in the
period where the Greek government closed the evaluation with the EU. His account
is that it played a key role in confidence the closing of the agreement, and
the first review.
The issue of the Non-Performing
Loans (NPL), the governor cited the recent file for bankruptcy protection by
the super market chain, Marinopoulos, which it owes about 2 billion euros. He
brought about the issue of corporate governance, and the new members on the
board of directors of Greek banks, as well as CEO’s. He said that now is the
time to break the ice. He was alluding to the fact that the appointment of non-banking
officials to the top management, was the culprit for giving out loans as
favoritism to buddies..
He estimated that in the next
three years, NPL’s will decline by 40% of Greek banks, and that 117% of NPL’s
are covered. That is because the banks have forecasted allowance for doubtful
accounts. The allowance for doubtful
accounts is a reduction of the total amount of accounts receivable
appearing on a company's balance sheet, and is listed as a deduction
immediately below the accounts receivable line item. This deduction is
classified as a contra asset account. Also, NPL’s have been accounted for by
the assets and capitalization.
Unemployment is a big problem in Greece and in order to have
lower unemployment, Greece needs to have growth of 2% annually, he insisted on
privatization, and that should not be a voodoo, as well as the utilization of public
property. Tourism and Energy are two sectors in the Greek economy with a
competitive advantage, and they will play a key role in the decline of
unemployment.
He emphasized the need for outside court settlement, to combat bureaucracy,
especially on the issue of NPL’s, restructuring reform. He expressed that the
tool kit of OECD, like the creation of an electronic one stop shop for
businesses, and the simplification in granting business licenses.
On the issue of the Italian banks, and the potential spread, the
Governor said he sees no domino effect with regard to the NPL’s, and sees no
banking crisis in Europe. In fact he said that banks are much stronger today
that in the period during the Lehman brothers default.
Recently the government is thinking of the possibility of
installing a mandatory pos electronic card system, especially in transactions
among businesses. It is even contemplating to impose it for consumers. The
governor was asked of his view and how this would combat the outflow of revenue
from the value added tax. He agreed since it is estimated that the treasury is
losing 10 billion euros annually.
On the issue of debts in arrears, it is estimated at 1 billion euros,
and the projection of total settlement is by 2019. As for the growth in the
Greek economy he predicts that Greece will have a positive GDP of 5.5% in the second
half of 2017.
With the issue of loans in the portfolio of Greek banks, they
will not sold to foreign funds by 2019, in contradiction with what has been
speculated thus far. According to the code of ethics of the Greek banks, it is
the obligation (and to their benefit) of the bank to approach the borrower in
order to restructure their loans, not foreclose.
Bill T. Alexandratos, MSc. BA
Finance
