The approval process of the SSM for the first return of capital to the shareholders of the Greek banks since 2008 is entering the final stretch, after the relevant requests were submitted to Frankfurt by their managements.
The ECB’s Supervisory Board remains wary of fully liberalizing dividend policy, due to geopolitical uncertainty that increases risks to the financial system, but also the lower quality of capital of domestic systemic groups, relative to the rest of Europe.
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However, sources from the sector appear optimistic about the supervisor’s green light, noting that it will be a very big surprise if there is a block in their plans.
As they say, domestic credit institutions have achieved an annual net profit of 3.6 billion euros for two years in a row, while at least for 2024 maintaining it at these levels is considered an easy task.
The role of interest rates
This is because on average interest rates on existing loan portfolios will be higher overall this year than last year, even if the ECB proceeds with successive reductions of its indicators from June onwards.
Therefore, net interest income is expected to remain around the €8 billion zone, without the need for an acceleration in credit growth rates.
Additional support to the banks’ results will come from net fee income, which is estimated to strengthen by at least 5%.
At the same time, the expected slight increase in operating expenses will be offset by lower costs for credit risk, as delinquency ratios are already at 4% and the trends are downward.
What the SSM will look at
By the beginning of the summer, the SSM is expected to respond to the requests of the Greek banks, so that the regular general meetings of their shareholders can follow, in all probability end of June – beginning of July, in order to receive the necessary approvals.
The Frankfurt microscope will include the following:
– The development of net profits in the coming years, based on the perspective of the de-escalation of European interest rates, which will inevitably have a negative impact on the organic profitability of banks
– Capital adequacy ratios and estimates for their further strengthening in the coming years, both organically, through profitability, and through bond issuances, which will continue
– The timing of the reduction of the participation of deferred tax assets (DTC) in the core core equity ratios (CET1). Today they are the highest in the Eurozone, moving from 44% to 76%
– The course of non-performing exposures and the prospects of convergence with the European average of 2.3% against 4.04% in Greece at the end of 2023
An unprecedented process
The decisions of the SSM will be taken with a view to achieving the above objectives and ensuring the necessary capital strength to deal with a possible deterioration of conditions in the markets.
Banking sources note that the whole process is unprecedented, as for the first time after 16 years a return of capital is underway.
“The truth is that we don’t know if there will be room for negotiation with the supervisor or if we will simply receive an answer about the amounts we can allocate,” the same circles emphasize.
It is recalled that according to the business plans recently published by the Greek groups during the presentation of the results of the fiscal year 2023, the distribution in the form of a dividend of an amount of 850 million euros cumulatively is foreseen.
This is about 25% of last year’s profitability. The aim of the banks is to increase this percentage to the level of 50% in the next three years.
