>A large part of Greek banks’ capital is made up by Deferred Tax Credits (DTCs). In 2021, the latter’s share in the banks’ capital increased to over 60%. The big share of DTCs in Greek banks’ capital is worrisome, as this is not considered a high-quality type of capital and is subject to uncertainty, as reiterated by the ECB in its opinion in July 2021 over a proposed law amendment regarding the amortization of losses from NPLs.[8]
>The large share of DTCs in Greek banks’ capital also raises the issue of the sovereign-bank nexus, one of the most important aspects of the previous crisis. The exposure of Greek banks to public debt has been increasing again in recent years. In 2021, the banks’ Greek government bond portfolio amounted to €28.3 billion, increased by more than 70% since 2019.[9] As a result, the banking system’s exposure to central government stood at 22.5% of total bank assets.[10] This trend, combined with the heavy reliance on DTCs and on government guarantees used in the schemes to sale NPLs, set the stage for a growing, long-term engagement of Greek banks and the Greek state, which is a cause for concern.
>The issues described above, ultimately impact on the banks’ ability to fulfill their primary mission, which is to fund the economy. Between 2011 and 2019 credit growth in Greece was negative. The resulting credit crunch deepened and prolonged the crisis. While this trend has been reversed since 2020, the level of funding towards the private sector remains at a very low level, substantially reduced compared to the pre-crisis period.
>The slow recovery of credit undermines the growth potential of the economy and limits banks’ profit-making capacity, and therefore their own growth prospects and resilience. The successful transfer of NPLs from the banks’ balance sheets does not guarantee a healthier credit environment as the debtors of these loans continue to be excluded from new bank credit. The private debt overhang acts as a drag on the economy. That burden could be further increased by the recent shocks. Some businesses did not survive the pandemic, while those that did and have received new credit, often with the support of the Hellenic Development Bank (HDB) or the European Investment Bank (EIB), may be overwhelmed by the inflationary shock following the war in Ukraine.
>The private debt dynamics are further aggravated by the structure of the economy. Small and very small businesses, typically operating at low-value-added, non-tradable sectors, highly dependent on domestic demand and with limited capacity for growth dominate the Greek economy. Burdened with legacy debts from the previous crises, these businesses are particularly vulnerable in the current macroeconomic environment.[11]
>Ultimately, the fate of banks is tied up with that of the broader economy. The banking system shapes and is itself affected by the dominant growth regime, which in Greece has been shown to be both unbalanced and unsustainable. As there is a long way to go to increase extroversion, productivity, and innovation, organic growth will not be easy for Greek banks, particularly since during the crisis they shed a large part of their foreign operations. In this context, the surge in Foreign Direct Investment (FDI) in recent years and the implementation of the Recovery and Resilience Plan (RRP) provide unique opportunities for banking business that also helps the economy onto a trajectory of sustainable growth. Beyond public policies necessary to complete the reform of the broader financial system,[12] Greek banks also need to evolve and rid themselves from the troubled legacies of the past; they should build on progress made during the crisis, to complete the modernization of their corporate governance, rationalize their operations and accelerate their digitalization. For better or for worse, the transformation of the Greek economy and that of the Greek banking system go hand in hand.
tl;dr στην ερχομενη κρίση θα τον πιούμε ακόμα χειρότερα. κάποιος θα πρέπει να ξανα”σώσει” αυτές τις τράπεζες και κάτι μου λέει πως θα είμαστε πάλι εμείς
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>A large part of Greek banks’ capital is made up by Deferred Tax Credits (DTCs). In 2021, the latter’s share in the banks’ capital increased to over 60%. The big share of DTCs in Greek banks’ capital is worrisome, as this is not considered a high-quality type of capital and is subject to uncertainty, as reiterated by the ECB in its opinion in July 2021 over a proposed law amendment regarding the amortization of losses from NPLs.[8]
>The large share of DTCs in Greek banks’ capital also raises the issue of the sovereign-bank nexus, one of the most important aspects of the previous crisis. The exposure of Greek banks to public debt has been increasing again in recent years. In 2021, the banks’ Greek government bond portfolio amounted to €28.3 billion, increased by more than 70% since 2019.[9] As a result, the banking system’s exposure to central government stood at 22.5% of total bank assets.[10] This trend, combined with the heavy reliance on DTCs and on government guarantees used in the schemes to sale NPLs, set the stage for a growing, long-term engagement of Greek banks and the Greek state, which is a cause for concern.
>The issues described above, ultimately impact on the banks’ ability to fulfill their primary mission, which is to fund the economy. Between 2011 and 2019 credit growth in Greece was negative. The resulting credit crunch deepened and prolonged the crisis. While this trend has been reversed since 2020, the level of funding towards the private sector remains at a very low level, substantially reduced compared to the pre-crisis period.
>The slow recovery of credit undermines the growth potential of the economy and limits banks’ profit-making capacity, and therefore their own growth prospects and resilience. The successful transfer of NPLs from the banks’ balance sheets does not guarantee a healthier credit environment as the debtors of these loans continue to be excluded from new bank credit. The private debt overhang acts as a drag on the economy. That burden could be further increased by the recent shocks. Some businesses did not survive the pandemic, while those that did and have received new credit, often with the support of the Hellenic Development Bank (HDB) or the European Investment Bank (EIB), may be overwhelmed by the inflationary shock following the war in Ukraine.
>The private debt dynamics are further aggravated by the structure of the economy. Small and very small businesses, typically operating at low-value-added, non-tradable sectors, highly dependent on domestic demand and with limited capacity for growth dominate the Greek economy. Burdened with legacy debts from the previous crises, these businesses are particularly vulnerable in the current macroeconomic environment.[11]
>Ultimately, the fate of banks is tied up with that of the broader economy. The banking system shapes and is itself affected by the dominant growth regime, which in Greece has been shown to be both unbalanced and unsustainable. As there is a long way to go to increase extroversion, productivity, and innovation, organic growth will not be easy for Greek banks, particularly since during the crisis they shed a large part of their foreign operations. In this context, the surge in Foreign Direct Investment (FDI) in recent years and the implementation of the Recovery and Resilience Plan (RRP) provide unique opportunities for banking business that also helps the economy onto a trajectory of sustainable growth. Beyond public policies necessary to complete the reform of the broader financial system,[12] Greek banks also need to evolve and rid themselves from the troubled legacies of the past; they should build on progress made during the crisis, to complete the modernization of their corporate governance, rationalize their operations and accelerate their digitalization. For better or for worse, the transformation of the Greek economy and that of the Greek banking system go hand in hand.
tl;dr στην ερχομενη κρίση θα τον πιούμε ακόμα χειρότερα. κάποιος θα πρέπει να ξανα”σώσει” αυτές τις τράπεζες και κάτι μου λέει πως θα είμαστε πάλι εμείς