The
Greek banks are facing their biggest challenge in the New Year, which is the
encounter of the non-performing loans, according to the Chairman of the Greek
central bank. As far as the legal aspect they now have a much bigger room which
they can legally work so as to encounter the excessive debted households, which
they are delayed, non performing business loans, and those that are able
financially to pay, but deliberately do not.
Banks
have now set new targets in reducing those non-performing loans, according to
the daily newspaper Kathimerini. Those targets are to improve their loan portfolio
by cleaning up the non – performing loans, increase their liquidity, their
capital base, and finally to save businesses that are in intensive care. Greek
banks had four consecutive bail outs by recapitalization, all were considered
successful. Critical factors which will help banks are the return of deposits
in the Greek banking system, and the slowly relaxation of capital controls,
before lifting the ban completely. At this time, banks are in no threat of a
bank run, with respect to deposits, because of capital controls, and the ban in
capital outflow.
The
state of the Greek economy will have an imminent impact on the banking system
of Greece. As we said the recapitalization may have saved the banks and made
them safe for depositors, but if there is a need for another recapitalization,
bail in will also follow. That is according to a new law in the EU. Since
Greece is in a memorandum program the progress of the Greek economy will depend
on the successful closing of the second review (economic progress which has
been set by Greece’s creditors), the conclusion of reforms (which even though
the law has been in effect, it has yet to work, and mainly consists of
privatization in Energy, etc.), and the participation in the Quantitative
Easing program by the ECB (European Central Bank).
Quantitative Easing is a monetary policy by the European Central Bank in which the Central Bank purchases government securities or other securities from the markets in order to lower interest rates and increase the money supply. Quantitative Easing increases the money supply by providing financial institutions with capital to promote increased lending and liquidity.
It
is imperative that the Greek Economy does not return to a state of instability,
economic and political risk as in the summer of 2015, when the country was near
a Grexit from the Eurozone, the closing of the Greek banks for a month, and the
imposing of capital controls. Since the beginning of the economic crisis,
deposits in the Greek banking system have been reduced by 100 billion euros,
while in 2017 deposits fell by 37 billion.
For
banks to return to lending before crisis is really hard. The banking system before
the crisis had deposits worth 230 billion euros, 240 billion in loans, and 25
billion in capital. So one can conclude that if banks want to put money into
the economy deposits must return to the banking system. In order for that to
happen, one requires a positive economic climate. As far as the non-performing
loans, they have reached 100 billion euros and banks have a commitment until
2019 to reduce that by half, otherwise face penalties.
